[Web note: Page formatting approximates, but does not match exactly, that of filed paper document.] JAMES F. FOTENOS California State Bar No. 50521 SIMON Y. LEUNG California State Bar No. 154250 FOTENOS & SUTTLE, P.C. 50 California Street, Suite 700 San Francisco, California 94111 (415) 781-0250 RICHARD A. FINBERG MALAKOFF, DOYLE & FINBERG Pennsylvania State Bar No. 17282 The Frick Building, Suite 200 Pittsburgh, Pennsylvania 15219 (412) 281-8400 Attorneys for Plaintiff UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA DEANNE R. ERICKSON, Trustee of ) CASE NO. C.96-2934 MHP The Kaufman Family 1981 Trust, ) dated October 21, 1981, on ) behalf of herself and all others ) CLASS ACTION similarly situated, ) ) Plaintiff, ) ) COMPLAINT FOR DAMAGES FOR v. ) VIOLATION OF THE SECURITIES ) EXCHANGE ACT OF 1934, WHEATLEY VENTURES, INC., a ) VIOLATION OF THE TRUST Georgia Corporation; MICHAEL L. ) INDENTURE ACT OF 1939, AND ASHNER; MARTIN LIFTON; ARTHUR N. ) BREACH OF TRUST INDENTURE QUELER; MONTGOMERY REALTY ) COMPANY--80, a California ) Limited Partnership; FOX REALTY ) DEMAND FOR TRIAL BY JURY INVESTORS, a California General ) Partnership; MONTGOMERY REALTY ) CORPORATION, a California ) corporation; EMMET J. CASHIN, ) JR.; JAROLD A. EVANS; LISLE W. ) PAYNE; W. PATRICK McDOWELL; ) WILLIAM W. STARK, JR.; JANET E. ) LARSON, Trustee, Phillip A. ) Larson Family Revocable Trust, ) dated April 19, 1974, as amended;) and NORTHERN TRUST BANK OF ) CALIFORNIA, N.A., a National ) Banking Association, ) ) Defendants. ) _________________________________) ------------------------------------------------------------------------ TABLE OF CONTENTS Page Glossary ..................................................... iii I. Jurisdiction and Venue ................................ 1 II. Nature of this Action ................................. 2 III. The Parties ........................................... 7 A. Plaintiffs ....................................... 7 B. Defendants ....................................... 8 IV. Class Allegations ..................................... 10 V. The History of the Partnership ........................ 13 A. Organization and Issuance of the Notes ........... 13 B. The Noteholders .................................. 15 C. The Properties Acquired by the Partnership ....... 17 D. The Financial History of the Partnership ........ 17 VI. Affiliated Party Advances to the Partnership .......... 19 VII. The NPI Takeover of the Partnership ................... 21 VIII. Preparation for the Tender Offer: The Partnership And Northern Trust CA Enter Into the Seventh Supplemental Indenture and the General Partner Seeks To De-Register the Notes Under the Exchange Act ...................... 23 IX. The SEC Comments on the Amendment and, Rather than Respond to the SEC's Comments, the General Partner Withdraws the Amendment ............ 27 COMPLAINT - i - ------------------------------------------------------------------------ Page X. The Tender Offer ...................................... 31 A. Terms of the Tender Offer ........................ 31 B. Conduct of the Trustee ........................... 37 XI. Repayment of the GP Advances and Redemption of the Notes ............................... 39 XII. The State Action ...................................... 40 First Claim for Relief Violation of Section 14(d)(1) of the Exchange Act (Against the Wheatley Defendants) ............................ 42 Second Claim for Relief Willful Violation of Section 14(d)(1) of the Exchange Act (Against Wheatley Ventures, Inc. and Michael L. Ashner) ...... 46 Third Claim for Relief Violation of Section 14(d)(4) of the Exchange Act (Against the Fox Defendants) ................................. 49 Fourth Claim for Relief Willful Violation of Section 14(d)(4) of the Exchange Act (Against Montgomery Realty Company--80, Fox Realty Investors, Jarold A. Evans, and Lisle W. Payne ............... 53 Fifth Claim for Relief Violation of the Trust Indenture Act (Against Northern Trust CA) .................................. 58 Sixth Claim for Relief Breach of the Indenture (Against Northern Trust CA) .................................. 61 Prayer ....................................................... 64 COMPLAINT - ii - ------------------------------------------------------------------------ GLOSSARY Term Definition "Exchange Act" Refers to the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78a et seq. ¶ 1 "FCMC" Refers to Fox Capital Management Corporation, a California corporation. ¶ 42 "Fox Defendants" Refers to Montgomery Realty Co., FRI, Montgomery Realty Corp., and the Fox Principals. ¶ 15 "Fox Principals" Refers to Emmet J. Cashin, Jr., Jarold A. Evans, Lisle W. Payne, W. Patrick McDowell, William W. Stark, Jr., and Janet E. Larson. ¶ 15 "FRI" Refers to Fox Realty Investors, a California general partnership. ¶ 13 "General Partner" Refers to Montgomery Realty Co. ¶ 12 "GP Advances" Refers to the loans totalling $6,755,000 made by FRI and FCMC to the Partnership or to joint ventures in which the Partnership had a controlling interest. ¶ 42 "Indenture" Refers to the Supplemental Indenture, dated of January 31, 1980, by and among the Partnership, Title Insurance & Trust Company, as Trustee, and Vincent Shepherd, as Co-Trustee, as supplemented by the Fifth, Sixth and Seventh Supplemental Indentures. ¶ 27 "Master Agreement" Refers to the Master Agreement, dated as of November 12, 1993, by and among Emmet J. Cashin, Jr., Jarold A. Evans, Lisle W. Payne, W. Patrick McDowell, William W. Stark, Jr., Janet E. Larson, FRI, NPI Equity Investments II, Inc., a Florida corporation, and NPI Realty Advisors, Inc., a Florida corporation. ¶ 48 "Montgomery Realty Co." Refers to Montgomery Realty Company --80, a California limited partnership. ¶ 12 COMPLAINT - iii - ------------------------------------------------------------------------ Term Definition "Montgomery Realty Corp." Refers to Montgomery Realty Corporation, a California corporation. ¶ 14 "Northern Trust CA" Refers to Northern Trust Bank of California, N.A., a national banking association. ¶ 17 "Noteholders" Refers to the record owners of the Notes, as of August 20, 1993. "Notes" Refers to the 10 Percent Nonrecourse Promissory Notes due June 30, 1994, issued by the Partnership under the Supplemental Indenture, dated as of January 31, 1980. ¶ 26 "NPI" Refers to National Property Investors, Inc., a Delaware corporation. ¶ 45 "Partnership" Refers to Preferred Properties Fund 80, a California limited partnership. ¶ 2 "Plaintiff Class" Refers to those class of persons on whose behalf this action is brought, as defined in ¶ 19 of the Complaint herein. "Residual Interest" Refers to the Noteholders' right to a portion of the proceeds from sale of the Partnership's properties. ¶ 28 "SEC" Refers to the Securities and Exchange Commission. "Tender Offer" Refers to the offer for the Notes made by Wheatley pursuant to the Tender Offer Statement. ¶65 "Tender Offer Statement" Refers to the Offer to Purchase for Cash up to $4,920,750 of the Outstanding Notes, dated August 20, 1993, by Wheatley (Exhibit A hereto). ¶ 65 "TI" Refers to Title Insurance & Trust Company, the initial Trustee under the Indenture. ¶ 29 COMPLAINT - iv - ------------------------------------------------------------------------ Term Definition "Trust Indenture Act" Refers to the Trust Indenture Act of 1939, 15 U.S.C. § 77aaa et seq. "TSA" Refers to Trust Services of America, Inc., the successor to TI as Trustee under the Indenture. ¶ 29 "Units" Refers to the $19,997,000 in units of limited partnership interests issued by the Partnership to the public. ¶ 26 "Wheatley" Refers to Wheatley Ventures, Inc., a Georgia corporation. ¶ 10 "Wheatley Defendants" Refers to Wheatley, Michael L. Ashner, Martin Lifton, and Arthur N. Queler. ¶ 11 COMPLAINT - v - ------------------------------------------------------------------------ Plaintiff DeAnne R. Erickson, by and through her undersigned attorneys, alleges, on personal knowledge as to herself and her own actions, and upon information and belief as to all other matters, as follows: I. JURISDICTION AND VENUE 1. This action is brought alleging violations of Section 14(d) of Securities Exchange Act of 1934, as amended (the "Exchange Act"), 15 U.S.C. § 78n(d), Section 315(c) of the Trust Indenture Act of 1939 (the "Trust Indenture Act"), 15 U.S.C. § 77ooo(c), and a trust indenture qualified under the Trust Indenture Act. This Court has jurisdiction over this action by virtue of Section 27 of the Exchange Act, 15 U.S.C. § 78aa, which grants District Courts of the United States exclusive jurisdiction over actions alleging violations of the Exchange Act, and Section 322(b) of the Trust Indenture Act, 15 U.S.C. § 77vvv(b), which grants jurisdiction over actions brought to enforce the Trust Indenture Act as provided in Section 22(a) of the Securities Act of 1933, as amended (the "Securities Act"), 15 U.S.C. § 77v(a), and 28 U.S.C. § 1367 (principles of supplemental jurisdiction). 2. Venue is predicated on Section 27 of the Exchange Act, 15 U.S.C. § 78aa, Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and 28 U.S.C. § 1391(b). A substantial part of the events giving rise to the claims asserted herein occurred in this District, in San Mateo County. Defendants Emmet J. Cashin, Jr., Jarold A. Evans, Lisle W. Payne, W. Patrick McDowell, William M. Stark, Jr., and Janet E. Larson reside in this District. Preferred Properties Fund 80, a California limited partnership (the "Partnership"), the target of the tender offer described herein, COMPLAINT - 1 - ------------------------------------------------------------------------ maintained, at all times relevant to this Complaint, its principal offices at 950 Tower Lane, Foster City, California 94404. At all times relevant to this Complaint, defendants Montgomery Realty Company--80, the General Partner of the Partnership, Fox Realty Investors, the managing partner of Montgomery Realty Company--80, and Montgomery Realty Corporation, also a partner of Montgomery Realty Company--80, maintained their principal executive offices at 950 Tower Lane, Foster City, California 94404. II. NATURE OF THIS ACTION 3. Plaintiff brings this action as the result of facts discovered by her undersigned attorneys in April 1996 in a related action plaintiff and her mother brought on August 17, 1995, and which is currently pending in the Santa Clara County Superior Court, entitled Dorothy M. Kaufman, et al. v. Northern Trust Bank of California, N.A., et al., Case No. CV 751777 (the "State Action"). The defendants, in the State Action are the same as the defendants in this action. By the State Action, plaintiffs challenge a tender offer (the "Tender Offer") made by defendant Wheatley Ventures, Inc. ("Wheatley") in the summer and fall of 1993 to the Noteholders of the outstanding Nonrecourse Promissory Notes (the "Notes") issued the Partnership. In the State Action, plaintiffs allege that the Tender Offer was a device employed by Wheatley, at the behest of the Montgomery Realty Company--80, General Partner of the Partnership, and its affiliates (the "Fox Defendants") to serve the selfish interest of the Fox Defendants in an early repayment of insider debt owed to the Fox Defendants and their affiliates by the Partnership, which indebtedness was subordinate in right of payment to the indebtedness owed by the Partnership to the Noteholders. Plaintiffs in the State Action COMPLAINT - 2 - ------------------------------------------------------------------------ claim that defendant Northern Trust Bank of California, N.A. ("Northern Trust CA") failed, under the "prudent man" standard applicable to it under the Trust Indenture Act, the trust indenture, and common law, to protect the Noteholders from the self-dealing scheme of the Wheatley and Fox Defendants. 4. Because the Notes contained an "equity kicker," the Notes had been registered by the Partnership in 1981 as "equity securities" with the Securities and Exchange Commission ("SEC") under Section 12(g) of the Exchange Act, 15 U.S.C. § 78l(g). At the time plaintiff filed her Complaint in the State Action, the public record was that the Fox Defendants had caused the Partnership in July 1993 to file a proposed amendment to its Registration Statement pertaining to the Notes so as to separate the Notes from the "equity kicker." The separation of the Notes from the equity kicker, pursuant to the proposed amendment implied that neither Wheatley nor the Partnership had to comply with the filing provisions of Section 14(d) of the Exchange Act, 15 U.S.C. § 78n(d) in connection with the Tender Offer. Section 14(d) of the Exchange Act requires a person making a tender offer for equity securities registered under the Exchange Act to comply with the rules and regulations promulgated thereunder by the SEC. Pursuant to the authority granted to it by Section 14(d), the SEC has promulgated Regulation 14D, 17 C.F.R. § 240.14d-1 to § 240.14d-101. Regulation 14D requires tender offerors to file a Schedule 14D-1 with the SEC at the time the tender offeror makes a tender offer for equity securities registered under the Exchange Act. Similarly, Rule 14d-9, 17 C.F.R. § 240.14d-9, requires the "target" of a tender offer to make a filing on Schedule 14D-9 with the SEC in response to a tender offer. Regulation 14D further requires that the tender offeror transmit the information required by Schedule 14D-1 to the persons receiving the tender offer, and requires the target of the tender offer to transmit the information COMPLAINT - 3 - ------------------------------------------------------------------------ required in Schedule 14D-9 to the persons receiving the tender offer. Wheatley did not file a Schedule 14D-1 with the SEC in connection with the Tender Offer, and the General Partner did not, on behalf of the Partnership, file a Schedule 14D-9 in response thereto. Wheatley did not include all of the information required by Schedule 14D-1 in the tender offer statement transmitted to the Noteholders, and the General Partner did not, in its response to the Tender Offer, include all of the information required by Schedule 14D-9. 5. In discovery conducted in the State Action, plaintiffs counsel learned in April 1996 that the Fox Defendants caused the Partnership to withdraw its July 1993 proposed amendment to the Registration Statement of the Notes. This fact was not known, and was not a matter of the public record, at the time the State Action was filed. The withdrawal was triggered by a comment letter of the Staff of the SEC on the Partnership's filing of the proposed amendment. The SEC asked why the Partnership was attempting to separate the Notes from the equity kicker. The Fox Defendants did not respond to this comment letter, but instead withdrew the proposed amendment to the Registration Statement. One week later, Wheatley launched its Tender Offer, even though at the time the Tender Offer was made, the Notes continued to be registered as equity securities under the Exchange Act. Similarly, the Fox Defendants caused the Partnership to transmit to the Noteholders a "response statement" in response to the Wheatley Tender Offer, but the Fox Defendants did not file the response statement with the SEC pursuant to Rule 14d-9. COMPLAINT - 4 - ------------------------------------------------------------------------ 6. In connection with the Tender Offer, Wheatley agreed with the Fox Defendants that, as to the Notes acquired by Wheatley pursuant to the Tender Offer, the Partnership would not have to repay Wheatley the amounts of principal and accrued but unpaid interest the Partnership owed on the Notes, but would only have to repay Wheatley the amounts it had paid for the Notes, plus costs and expenses and a 10% return on Wheatley's investment in the Notes. As a result of this scheme, the amount of indebtedness owed to the Noteholders senior in right of payment to the insider debt was reduced by some $4,700,000. At the time Wheatley made the Tender Offer, its affiliate, National Property Investors, Inc. ("NPI"), had been negotiating with the Fox Defendants to take control of the General Partner of the Partnership and to take control of the general partners of some 29 other limited partnerships then controlled by the Fox Defendants. The Wheatley and Fox Defendants agreed that, upon NPI's takeover of control of the Partnership, the Partnership would proceed with the sale of four of its five remaining real properties so as to generate sufficient net proceeds to repay all insider debt. In its Tender Offer Statement, Wheatley did not disclose its agreement with the Fox Defendants to proceed with a sale of the Partnership's properties, and the repayment of the Partnership's indebtedness to the insiders, after its affiliate's acquisition of control of the management of the Partnership. Had Wheatley filed a Schedule 14D-1 with the SEC in connection with the Tender Offer, Wheatley would have been obligated to disclose its plans and proposals with respect to the sale of the properties of the Partnership and the repayment of the insider debt. 7. In July 1993, defendant Northern Trust CA agreed to an amendment to the trust indenture (the "Seventh Supplemental Indenture") separating the equity kicker component of the Notes COMPLAINT - 5 - ------------------------------------------------------------------------ from the Notes. The Partnership had been in default in the payment of interest under the Notes since April 1989. Because the Notes were in default, Northern Trust CA was subject to a heightened "prudent man" standard of duty with respect to the Noteholders under the Trust Indenture Act and the Indenture governing the Notes. Montgomery Realty Co., the General Partner of the Partnership, caused the Partnership to enter into the Seventh Supplemental Indenture with Northern Trust CA for the purpose of paving the way for Wheatley to make, and the Partnership to respond to, the Tender Offer without compliance with Section 14(d) of the Exchange Act and the rules and regulations promulgated thereunder. Northern Trust CA knew, or had reason to know, this was the purpose of the Seventh Supplemental Indenture. Northern Trust CA knew, or had reason to know, that the Partnership would, in connection with the Seventh Supplemental Indenture, file a proposed amendment to its Exchange Act Registration Statement separating the equity kicker from the Notes so as to de-register the Notes as Section 12(g) equity securities. Northern Trust CA knew, or had reason to know, that the Fox Defendants caused the Partnership to withdraw the proposed amendment. Northern Trust CA knew, or had reason to know, that Wheatley and the Fox Defendants proceeded with the Tender Offer in violation of the filing requirements of Section 14(d) of the Exchange Act and the rules and regulations promulgated thereunder. Northern Trust CA took no steps to protect the Noteholders from the Wheatley and Fox Defendants' unlawful conduct. 8. Had the Wheatley and Fox Defendants faced the choice of conducting the Tender Offer in compliance with Section 14(d) of the Exchange Act or abandoning the Tender Offer, the Wheatley and Fox Defendants would not have proceeded with the Tender Offer. Had the COMPLAINT - 6 - ------------------------------------------------------------------------ Tender Offer not been made or had not been consummated, the Notes of plaintiff and the other members of the Plaintiff Class would have been redeemed in full on or about March 20, 1994. The difference between what plaintiff and the other members of the Plaintiff Class would have received had their Notes been redeemed in full and what Wheatley paid them for their Notes in the Tender Offer is approximately $4,700,000. III. THE PARTIES A. Plaintiff 9. Plaintiff DeAnne R. Erickson is an individual who resides in Poway, California. Ms. Erickson is the daughter of Dorothy M. Kaufman, age 79, who resides in San Diego, California. In 1980, Mrs. Kaufman and her late husband, Dean F. Kaufman, purchased $7,000 in principal amount of the Nonrecourse Promissory Notes (the "Notes") of the Partnership in the initial public offering of such Notes. Mr. Kaufman died in April 1983. In October 1981, Mrs. Kaufman and her late husband established The Kaufman Family 1981 Trust (the "Trust"), pursuant to that certain Trust Agreement dated October 21, 1981 (the "Trust Agreement"). The Notes of the Partnership acquired by the Kaufmans were transferred to the Trust. Upon Mr. Kaufman's death in 1983, the Kaufmans' daughter, plaintiff DeAnne R. Erickson, succeeded Mr. Kaufman as co-trustee of the Trust. Mrs. Kaufman and her daughter, as co-trustees of the Trust, held the Notes of the Partnership continuously until their sale to defendant Wheatley pursuant to the Tender Offer on or about December 6, 1993. Mrs. Kaufman, as co-trustee of the Trust, has COMPLAINT - 7 - ------------------------------------------------------------------------ released and delegated to her daughter, plaintiff DeAnne R. Erickson, the sole right power, and authority to file this lawsuit and to take all actions necessary or appropriate in connection therewith. B. Defendants 10. Defendant Wheatley Ventures, Inc. ("Wheatley") is a Georgia corporation. Wheatley maintains its principal offices in Jericho, New York. 11. Defendants Michael L. Ashner, Martin Tifton, and Arthur N. Queler are the directors, principal executive officers, and sole shareholders of Wheatley. The actions of Wheatley alleged herein were taken at the direction and with the approval of defendants Ashner, Lifton, and Queler. Wheatley and Messrs. Ashner, Lifton, and Queler are referred to collectively hereinafter as the "Wheatley Defendants." 12. Defendant Montgomery Realty Company--80 ("Montgomery Realty Co." or the "General Partner") is a California limited partnership. Montgomery Realty Co. has served as the general partner of the Partnership since the Partnership's organization in 1979. From 1979 through the second calendar quarter of 1994, Montgomery Realty Co.'s principal offices were located in San Mateo County. 13. Defendant Fox Realty Investors ("FRI") is a California general partnership. FRI serves as one of the two general partners of Montgomery Realty Co., and is the managing partner of Montgomery Realty Co. FRI, which formerly was known as "Montgomery Realty Investors," has also done business under the name "Fox Hotel Investors." From 1979 through the second calendar quarter of 1994, FRI's principal offices were located in San Mateo County. COMPLAINT - 8 - ------------------------------------------------------------------------ 14. Defendant Montgomery Realty Corporation ("Montgomery Realty Corp.") is a California corporation and the other general partner, with FRI, of Montgomery Realty Co. From 1979 through the second calendar quarter of 1994, Montgomery Realty Corp.'s principal offices were located in San Mateo County. 15. At all times relevant to this Complaint through December 6, 1993, each of defendants Emmet J. Cashin, Jr., Jarold A. Evans, Lisle W. Payne, W. Patrick McDowell, William W. Stark, Jr., and Janet E. Larson, Trustee of the Phillip A. Larson Family Revocable Trust, dated April 19, 1974, as amended (said individuals collectively referred to hereinafter as the "Fox Principals") was a partner of FRI. All acts of the General Partner of the Partnership alleged herein were taken at the direction and with the approval of the Fox Principals. Montgomery Realty Co., FRI, Montgomery Realty Corp., and the Fox Principals are referred to collectively hereinafter as the "Fox Defendants." 16. At all times relevant to this Complaint, through December 6, 1993, the executive officers of Montgomery Realty Corp. were defendants W. Patrick McDowell and Jarold A. Evans, and the directors of Montgomery Realty Corp. were defendants Emmet J. Cashin, Jr., Jarold A. Evans, and Lisle W. Payne. 17. Defendant Northern Trust Bank of California, N.A. ("Northern Trust CA") is a national banking association. Northern Trust CA maintains its principal offices in Santa Barbara, California. Northern Trust CA is a subsidiary of Northern Trust Corporation ("Northern Trust"), the 37th largest bank holding company in the United States. Northern Trust is headquartered in Chicago, Illinois. From January 1992 through March 1994 (when the Notes were redeemed by the Partnership), defendant Northern Trust COMPLAINT - 9 - ------------------------------------------------------------------------ CA served as successor Trustee under the Trust Indenture, as amended, governing the terms and provisions of the Notes. IV. CLASS ALLEGATIONS 18. This action is brought as a class action pursuant to Rule 23(a) and Rule 23(b)(3) of the Federal Rules of Civil Procedure. 19. Plaintiffs bring this action on behalf of a class consisting of all persons who held outstanding Notes of the Partnership as of August 20, 1993, and who, pursuant to the Tender Offer, sold their outstanding Notes to Wheatley. Expressly excluded from the class are the defendants named herein, their affiliates, employees, legal representatives, agents and members of the immediate family of each of the named individual defendants. The class of persons defined in this paragraph 19 is referred to hereinafter as the "Plaintiff Class." 20. The members of the Plaintiff Class are so numerous that joinder of them is impracticable. The members of the Plaintiff Class number in excess of 1,000. 21. There are questions of law and fact common to the Plaintiff Class which predominate over questions which may affect only individual class members. Among these common questions of law and fact are the following: (i) Whether Wheatley and the other Wheatley Defendants violated the provisions of Section 14(d)(1) of the Exchange Act, 15 U.S.C. § 78n(d)(i), by failing to comply with the provisions of the SEC's Regulation 14D thereunder in connection with the Tender Offer; COMPLAINT - 10 - ------------------------------------------------------------------------ (ii) Whether Montgomery Realty Co., the General Partner of the Partnership, and the other Fox Defendants failed to comply with the provisions of Section 14(d)(4) of the Exchange Act, 15 U.S.C. § 78n(d)(4), by failing to comply with the provisions of the SEC's Regulation 14D thereunder in connection with the Tender Offer; (iii) Whether defendants Wheatley's and Ashner's violation of Section 14(d)(1) of the Exchange Act and the rules and regulations promulgated thereunder was willful; (iv) Whether defendants Montgomery Realty Co.'s, FRI'S, Payne's, and Evans' violation of Section 14(d)(4) of the Exchange Act and the rules and regulations promulgated thereunder was willful; (v) Whether Northern Trust breached its duties to the members of the Plaintiff Class, as those duties are defined in Section 315(c) of the Trust Indenture Act, 15 U.S.C. Section 77ooo(c), in connection with the Tender Offer; (vi) Whether Northern Trust breached its duties to the members of the Plaintiff Class, as those duties are defined in the Indenture, in connection with the Tender Offer; and (vii) The extent of plaintiffs and the Plaintiff Class' damages caused by defendants' unlawful conduct. 22. The representative plaintiff s claims are typical of the claims of the Plaintiff Class. The members of the Plaintiff Class are entitled to an amount equal to the difference between what they would have received in principal and interest payments on the Notes had they held the same through the redemption date thereof (March COMPLAINT - 11 - ------------------------------------------------------------------------ 20, 1994) and what they were paid by Wheatley for their Notes on or about December 6, 1993, plus interest on the difference between these two amounts from March 20, 1994. 23. The representative plaintiff has been injured by the acts and practices complained of herein and will fairly and adequately represent and protect the interests of the Plaintiff Class. The representative plaintiff has no interests adverse to the interests of the Plaintiff Class. The representative plaintiff has retained counsel competent and experienced in securities and class litigation and in partnership law. Counsel will vigorously prosecute this action. 24. The class action is superior to other available methods for the fair and efficient adjudication of this controversy, since joinder of all members of the Plaintiff Class is impracticable. The claims of the Plaintiff Class are too small to be litigated on an individual basis, but may be effectively prosecuted through a class action. There will be no difficulty in the management of this action as a class action. 25. Plaintiff DeAnne R. Erickson, with her mother, Dorothy M. Kaufman, serve as the representative plaintiffs in the related action entitled Dorothy M. Kaufman and DeAnne R. Erickson et al. v. Northern Trust Bank of California, N.A., et al., Santa Clara County Superior Court Case No. CV 751777 (filed August 17, 1995) (hereinafter, the "State Action"). Counsel to plaintiffs in the State Action are the same counsel as are representing plaintiff in this action -- Fotenos & Suttle, P.C. and Richard A. Finberg of Malakoff, Doyle & Finberg. On February 6, 1996, plaintiffs filed their motion for class certification in the State Action. Both representative plaintiffs in the State Action were deposed on March 12, 1996. The motion, heard April 18, 1996, was vigorously COMPLAINT - 12 - ------------------------------------------------------------------------ contested by the defendants. On July 11, 1996, the Court (the Honorable Peter G. Stone) entered its order granting plaintiffs' motion for class certification in the State Action. V. THE HISTORY OF THE PARTNERSHIP A. Organization and Issuance of the Notes 26. The Partnership was organized on August 6, 1979 as a California limited partnership under the California Uniform Limited Partnership Act, Cal. Corp. Code § 15501 et seq. During the period from February 12, 1980 through December 1980, the Partnership offered and sold, pursuant to a Registration Statement that was filed and declared effective by the Securities and Exchange Commission ("SEC") under the Securities Act, $19,997,000 in units of limited partnership interests (the "Units") and $19,651,000 in Nonrecourse Promissory Notes (the "Notes"). The Units were sold to approximately 2,500 Limited Partners and the Notes were sold to approximately 1,600 Noteholders. 27. The Notes were issued under a Supplemental Indenture, dated as of January 31, 1980 (amending and restating the Indenture and three supplemental Indentures thereto), qualified by the Partnership with the SEC under the Trust Indenture Act. As of August 20, 1993, the date the Tender Offer was begun, the Supplemental Indenture had been further supplemented by the Fifth Supplemental Indenture, dated as of November 6, 1985, the Sixth Supplemental Indenture, dated as of May 26, 1989, and the Seventh Supplemental Indenture, dated as of July 20, 1993 (collectively, the "Indenture"). COMPLAINT - 13 - ------------------------------------------------------------------------ 28. The Notes bore interest at the rate of 10% per annum. Interest was payable on the Notes quarterly, but the principal amount of the Notes was due and payable, in one balloon payment, on June 30, 1994. Interest not paid was to be added to principal, and compounded at the rate of 10% per annum. The Notes were secured by deeds of trust and other security instruments on each of the properties owned by the Partnership. The Notes were non-recourse to the General Partner of the Partnership, meaning that Montgomery Realty Co. had no personal obligation to repay the principal of the Notes or any interest due thereon. In addition to repayment of principal and the payment of interest, the Noteholders were also entitled to a percentage of the proceeds from the sale of the Partnership's properties, after a return therefrom of the capital invested in the Partnership by the Limited Partners and General Partner, and the payment therefrom of certain preferential returns to the Limited Partners and to the General Partner. (Such residual proceeds payable to the Noteholders, in addition to principal and interest on the Notes, is referred to hereinafter as "Residual Interest.") The Notes could be redeemed, in whole or in part, prior to June 30, 1994. No proceeds from the sale of the Partnership's properties could be allocated and distributed to the Partners of the Partnership (Limited or General) until such time as the principal of the Notes, and all interest accrued, but unpaid thereon, had been paid in full. Upon any default by the Partnership under the terms of the Notes and/or the Indenture, the Trustee under the Indenture was empowered and obligated to protect the rights of the Noteholders, by, among other things, instituting and prosecuting actions at law or in equity, entering onto and managing the Partnership's properties, foreclosing the liens of the Indenture's deeds of trust or other security instruments on the COMPLAINT - 14 - ------------------------------------------------------------------------ Partnership's properties, and selling the Partnership's properties. The Indenture is to be construed in accordance with, and governed by, the laws of the State of California. 29. The initial Trustee under the Indenture was Title Insurance & Trust Company ("TI"), Los Angeles, California. Sometime in the early 1980's, TI was replaced as Trustee under the Indenture by Trust Services of America, Inc. ("TSA"), an affiliate of CalFed, Inc. In January 1992, Northern Trust CA succeeded TSA as Trustee under the Indenture, and served as Trustee under the Indenture until the Notes were redeemed in full by the Partnership on or about March 20, 1994. B. The Noteholders 30. Pursuant to the financial suitability standards established by the Partnership, the Noteholders were required to have a net worth (exclusive of home, home furnishings, and automobiles) of at least $20,000, and an annual income of at least $20,000, or, alternatively, regardless of annual income, a net worth of $75,000 (exclusive of home, home furnishings, and automobiles). The typical Noteholder invested $5,000 to $10,000 in the Notes. 31. Prior to the commencement of the Tender Offer, there were few, if any, institutional holders of the outstanding Notes of the Partnership, such as mutual funds, insurance companies, large pension plans, or brokerage firms holding the Notes in their investment or trading accounts. 32. Neither the Notes nor the Units were traded on a securities exchange or on any organized over-the-counter market. Prior to commencement of the Tender Offer, there was no market available to the Noteholders in which they could sell their Notes. COMPLAINT - 15 - ------------------------------------------------------------------------ C. The Properties Acquired by the Partnership 33. The net proceeds from the Partnership's offering of the Units and the Notes to the public were used to purchase interests in ten income-producing real properties. These properties consisted of hotels and motels, apartment complexes, and office and industrial buildings, located in the states of Arizona, California, Colorado, Georgia, and Texas. 34. The investment objective of the Partnership was to hold and manage its properties for a period of five to twelve years, to distribute cash for payment of interest on the Notes and as distributions to the Limited Partners on their Units, to generate tax benefits for the Limited Partners, and then to sell the properties of the Partnership after a period of ownership ranging from five to eight years for residential properties and from eight to twelve years for hotel and motel properties. It was an investment objective of the Partnership to redeem the Notes, in their entirety, prior to the due date thereof, June 30, 1994. 35. During the period from July 1986 through December 1989, the Partnership sold two adjacent apartment complexes and two hotel properties. In addition, during this period of time, the Partnership lost one office building through foreclosure by the lender. As a result of the property sales, the Partnership made partial principal payments to the Noteholders of $13,090,000, reducing the aggregate outstanding principal of the Notes from $19,651,000 to $6,561,000 (or to $333.86 remaining principal per $1,000 of the original principal of the Notes). 36. For the three years ending December 31, 1992, the performance of the Partnership's five remaining properties steadily COMPLAINT - 16 - ------------------------------------------------------------------------ improved. For the year ended December 31, 1992, the five remaining properties generated $5,223,000 in net operating income (operating revenues minus operating expenses), compared to $4,611,000 in net operating income for the year ended December 31, 1991, and $3,520,000 in net operating income for the year ended December 31, 1990. After payment of debt service (not including any debt service on the Notes) and the making of certain adjustments, the Partnership's five remaining properties generated $1,028,000 in net revenues for the year ended December 31, 1992, compared to $515,000 in comparable revenues for the year ended December 31, 1991, and a deficit of $530,000 suffered for the Year ended December 31, 1990. One property alone, Plaza San Antonio, a 252-room hotel in San Antonio, Texas, generated $2,629,000 in net operating income for the year ended December 31, 1992, and $983,000 in net revenues for the year, compared to $2,000,000 in net operating income for the year ended December 31, 1991 ($190,000 in net revenues), and $1,051,000 in net operating income for the year ended December 31, 1990 (and a deficit of $703,000 in net revenues for that year). D. The Financial History of the Partnership 37. During the year (1980) that it offered and sold its Units to the public, the Partnership made a distribution of $18 per Unit to its Limited Partners from interest income earned by the Partnership on the Limited Partners' capital contributions pending their investment in properties. For the years 1981 through December 31, 1993 (the year in which the Tender Offer was made and consummated), the Partnership made no further distributions to its Limited Partners. Beginning in 1988, the General Partner of the Partnership concluded that the equity of the Limited Partners in COMPLAINT - 17 - ------------------------------------------------------------------------ the Partnership had been completely lost. From that date forward, through August 20, 1993, the date the Tender Offer for the Notes was begun, the General Partner repeatedly announced in its reports to the Limited Partners and to the Noteholders that the Limited Partners would not receive a return of any of the capital they had invested in the Partnership. 38. In its annual reports to its Limited Partners and its Noteholders for the years ended December 31, 1991 and December 31, 1992, the Partnership included the report of its independent auditors, Deloitte & Touche, San Francisco. Deloitte & Touche qualified each of its auditor's opinions on the Partnership's financial statements for these years with a "going concern" qualification, expressing "substantial doubt" about the Partnership's ability to continue as a going concern. 39. In its annual reports to its Limited Partners and its Noteholders for the years ended December 31, 1991 and December 31, 1992, the Partnership reported a negative net worth of $16,955,000 (at December 31, 1991) and $18,638,000 (at December 31, 1992). 40. The Partnership paid interest on the Notes through the quarterly payment due and payable on January 15, 1989. Interest was paid at the rate of 10% per annum on the Notes, as called for by the terms of the Notes, through 1987, and interest was paid at the rate of 6% per annum on the Notes in 1988 and for the first quarter of 1989, with the difference between the interest paid and the stated rate of 10% accrued and added to the principal of the Notes. Commencing with the interest payment due on the Notes on April 15, 1989, the Partnership ceased making any interest payments on the Notes and made no further interest payment on the COMPLAINT - 18 - ------------------------------------------------------------------------ Notes until they were called for redemption on March 20, 1994. The Partnership's failures to make interest payments on the Notes each constituted an event of default under the Indenture. 41. The Partnership made partial payments of principal on the Notes as alleged in paragraph 35 herein. After January 1, 1989, the Partnership made no further payments of principal on the Notes until the Notes were called for redemption on March 20, 1994. VI. AFFILIATED PARTY ADVANCES TO THE PARTNERSHIP 42. During the period from October 1986 through December 21, 1990, FRI, one of the general partners of Montgomery Realty Co. (the General Partner of the Partnership), and Fox Capital Management Corporation ("FCMC"), a California corporation and an affiliate of FRI, loaned the Partnership a net total of $6,755,000 (hereinafter, the "GP Advances"). Of this amount, $573,000 had been lent to joint ventures, controlled by the Partnership, that owned three of the properties of the Partnership, $513,000 had been lent to the Partnership to enable the Partnership to pay interest on the Notes, and the balance ($5,669,000) had been lent to the Partnership for working capital purposes. 43. At the time the advances were made by FRI and FCMC to the Partnership to fund interest payments to the Noteholders ($513,000), the then Trustee under the Indenture, TSA, agreed to subordinate the lien of the Indenture, in favor of the Noteholders, on the properties and joint venture interests owned by the Partnership, to prior payment of these advances made to fund COMPLAINT - 19 - ------------------------------------------------------------------------ interest payments. In its financial reports to the Noteholders, the General Partner acknowledged that $5,669,000 of the GP Advances was unsecured and subordinate in right of payment to prior payment of the outstanding principal of the Notes and all accrued but unpaid interest thereon. In these financial reports, the General Partner claimed that that portion of the GP Advances made to joint ventures in which the Partnership had a controlling interest (totaling $573,000) was prior in right of payment to the lien of the Indenture securing repayment of the outstanding principal and all accrued but unpaid interest on the Notes. However, under the Partnership Agreement of the Partnership and the Indenture, the only portion of the GP Advances subject to payment prior in right to the lien of the Indenture in favor of the Noteholders was the advance ($513,000) expressly agreed to by the Indenture Trustee to be prior in right of payment to the outstanding principal of the Notes and all accrued but unpaid interest thereon. 44. Prior to August 20, 1993, the date the Tender Offer was begun, the General Partner had not accrued or reported any interest payable on that portion of the GP Advances the General Partner acknowledged to be unsecured ($5,669,000), because the General Partner had concluded that the Partnership's assets, after payment of the mortgage indebtedness securing the Partnership's properties and the principal and accrued but unpaid interest on the Notes, would be insufficient to pay interest on the GP Advances. The amount of this unreported interest accrued on the GP Advances, as of August 20, 1993, was approximately $1,550,000. /// COMPLAINT - 20 - ------------------------------------------------------------------------ VII. THE NPI TAKEOVER OF THE PARTNERSHIP 45. Wheatley is an affiliate of National Property Investors, Inc., a Delaware Corporation ("NPI"). NPI is controlled by defendants Michael L. Ashner, Martin Lifton, and Arthur N. Queler. 46. From 1990 through 1994, NPI pursued an aggressive strategy of acquiring control of limited partnerships owning and managing income-producing real estate. NPI implemented this strategy by purchasing controlling interests in the general partners managing these partnerships. Through its affiliates, NPI, as of December 31, 1995, served as the general partner of 30 public limited partnerships and more than 75 private limited partnerships, with more than 200,000 limited partners. NPI reported that it was one of the ten largest owner/managers of apartment properties in the United States, and that it employed approximately 3,000 employees involved in all aspects of the real estate business. In January 1996, control of NPI passed from defendants Ashner, Lifton, Queler, and their affiliates, to Insignia Financial Group, a large full-service real estate firm headquartered in Greenville, South Carolina. 47. In October 1992, the Fox Principals and NPI commenced negotiations over the sale of a controlling interest in Montgomery Realty Co., the General Partner of the Partnership, and a controlling interest in the general partners of 29 other partnerships controlled and managed by the Fox Principals, to NPI. NPI's objective in these negotiations was to further its strategy of acquiring control of limited partnerships owning and managing income-producing real estate. The Fox Principals' motivations for entering into these negotiations included the objective of COMPLAINT - 21 - ------------------------------------------------------------------------ receiving an early repayment of all advances they and their affiliates had made to the partnerships they controlled and managed, of which over $9,000,000 represented the GP Advances plus accrued but unpaid interest due on the GP Advances, made by FRI and by FCMC to the Partnership. 48. The negotiations between the Fox Principals and NPI lasted over one year. They were consummated on or about November 12, 1993, when defendants Cashin, Evans, Larson, McDowell, Payne, and FRI entered into a Master Agreement (the "Master Agreement") with affiliates of NPI. Pursuant to the Master Agreement, the Fox Principals agreed to transfer control of Montgomery Realty Co., the General Partner of the Partnership, and the general partners of the other partnerships controlled and managed by the Fox Principals, to affiliates of NPI, and an affiliate of NPI acquired from FRI and FCMC the right to repayment of the GP Advances. 49. The Master Agreement was consummated on or about December 6, 1993, the same date the Tender Offer was consummated. An affiliate of NPI paid over $1,000,000, in cash, to FRI and FCMC for the GP Advances at the closing, and committed to pay the balance pursuant to two promissory notes, each having a term of six years. The NPI affiliate agreed to pay over to FRI and FCMC in payment of these promissory notes all amounts the affiliate received from the Partnership in repayment of the GP Advances, and further agreed to pay over a portion of all fees and compensation it and its affiliates earned from the Partnership toward the satisfaction of these promissory notes. 50. In negotiating the terms of the Master Agreement, the Fox Principals were motivated by a desire for an early repayment of the COMPLAINT - 22 - ------------------------------------------------------------------------ GP Advances. The Master Agreement contained incentives for NPI and for its affiliates to make an early payment on the promissory notes they issued in payment for the GP Advances, by the feature thereof that required NPI and its affiliates to pay over a portion of the compensation they earned towards satisfaction of these promissory notes. The earlier the GP Advances were paid, the greater would be the compensation payable by the Partnership to NPI and to its affiliates that could be retained by them and not paid over to affiliates of the Fox Principals. VIII. PREPARATION FOR THE TENDER OFFER: THE PARTNERSHIP AND NORTHERN TRUST CA ENTER INTO THE SEVENTH SUPPLEMENTAL INDENTURE AND THE GENERAL PARTNER SEEKS TO DE-REGISTER THE NOTES UNDER THE EXCHANGE ACT 51. Because the Noteholders were entitled to Residual Interest, as alleged in paragraph 28 herein, the Notes were deemed "equity securities" within the meaning of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78a et seq. (the "Exchange Act"). As equity securities within the meaning of the Exchange Act, the Partnership, in February 1981, registered the Notes with the SEC pursuant to Section 12(g) of the Exchange Act, 15 U.S.C. § 78l(g). 52. On or about July 8, 1993, the General Partner informed Northern Trust CA of the proposed Tender Offer by Wheatley for the Notes, and advised Northern Trust CA that Wheatley had requested that the Noteholders' right to Residual Interest under the Supplemental Indenture be separated from the Notes so that Wheatley could make its Tender Offer for the Notes only. The General Partner informed Northern Trust CA that Wheatley would not proceed with the Tender Offer unless Northern Trust CA agreed to the COMPLAINT - 23 - ------------------------------------------------------------------------ Seventh Supplemental Indenture and would not proceed with the Tender Offer unless an amendment to the Partnership's Registration Statement of the Notes under the Exchange Act was filed and declared effective, de-registering the Notes as Section 12(g) equity securities. 53. Northern Trust CA agreed to the Seventh Supplemental Indenture on or about July 20, 1993. Pursuant to the Seventh Supplemental Indenture, the right to receive Residual Interest under the Indenture was separated from all other rights granted to the Noteholders under the Indenture. 54. Montgomery Realty Co., the General Partner of the Partnership, had concluded, at least as early as 1988, that given the lack of success of the Partnership, the Noteholders would not receive any Residual Interest, and had repeatedly expressed this opinion to the Noteholders in the Partnership's reports to the Noteholders. That the Noteholders would not receive any Residual Interest was repeated in Wheatley's Tender Offer Statement (Exhibit A hereto) (see page 5). 55. There was no business justification for the separation of the right to receive Residual Interest under the Notes from all other rights under the Indenture. The request made to Northern Trust CA by Wheatley to separate the Residual Interest from the Notes was made pursuant to an agreement between the Wheatley and Fox Defendants. The purpose of this agreement, and Wheatley's request to Northern Trust CA to separate the right to receive Residual Interest from the Notes, was to enable Wheatley and the General Partner to avoid the requirement that Wheatley file a Schedule 14D-1 with the SEC in connection with the Tender Offer, and to enable the General Partner to avoid the requirement that it, COMPLAINT - 24 - ------------------------------------------------------------------------ on behalf of the Partnership, file a Schedule 14D-9 with the SEC in connection with the Tender Offer. Northern Trust CA knew, or had reason to know, that there was no business justification for the separation of the right to receive Residual Interest under the Notes from all other rights under the Indenture, and that the purpose of the separation was to enable Wheatley to make, and the Partnership to respond to, the Tender Offer without compliance with Section 14(d) of the Exchange Act and the rules and regulations promulgated thereunder. 56. Any person making a tender offer for an "equity security," registered under Section 12(g) of the Exchange Act must comply with the provisions of Section 14(d) of the Exchange Act, 15 U.S.C. § 78n(d). This provision, and the rules promulgated by the SEC thereunder, require a person making a tender offer for equity securities to file a Schedule 14D-1, 17 C.F.R. § 240.14d-100, with the SEC, containing the information required by the Schedule. Schedules 14D-1 are subject to public inspection. Schedule 14D-1 requires extensive information about the tender offer, the background of the tender offeror, and the plans of the tender offeror for the target company in the event that the tender offer is successful. In particular, item 5 of Schedule 14D-1 requires a tender offeror to state the purpose or purposes of the Tender Offer, and to describe any plans or proposals which relate to or would result in, inter alia, a sale or transfer of a material amount of the assets of the target company. Pursuant to Rule 14d- 6, 17 C.F.R. § 240.14d-6, the tender offeror must distribute certain information to the persons to whom the tender offer is made, which information must generally include the information supplied by the tender offeror to the SEC on Schedule 14D-1. In addition, in response to a tender offer for an equity security COMPLAINT - 25 - ------------------------------------------------------------------------ registered under the Exchange Act, the target company must file with the SEC a Schedule 14D-9, 17 C.F.R.- § 240.14d-101, setting forth its position with respect to the tender offer. Schedules 14D-9 are available for public inspection. Among other things, Schedule 14D-9 requires that there be filed as an exhibit thereto any material contract or agreement between the target company or its affiliates and the tender offeror or its affiliates, and specifically requires the persons filing the statement (which, in the case of the Partnership, would be the General Partner) to describe any negotiations then being taken or underway and which relate to or would result in a sale of a material amount of the assets by the target company. Rule 14d-9, 17 C.F.R. § 240.14d-9, requires the target company to transmit to the persons to whom the tender offer is made certain information, including generally the information required to be filed by the target company with the SEC by Schedule 14D-9. 57. On July 26, 1993, the Partnership filed Form 8-A/A No. 2 (the "Amendment") with the SEC. By this filing, the Partnership sought to file the Fifth, Sixth, and Seventh Supplements to the Indenture (paragraph 27 herein). By this filing, the Fox Defendants sought to cause the Partnership to de-register the Notes, so as to enable Wheatley and the General Partner of the Partnership to avoid complying with Regulation 14D (paragraph 56). In its cover letter transmitting the Amendment to the SEC, dated July 26, 1993, counsel did not inform the SEC that the Fox and Wheatley Defendants were then preparing a tender offer for the Notes, and did not inform the SEC that the Fox and Wheatley Defendants intended to conduct the tender offer without compliance with Section 14(d) of the Exchange Act and Regulation 14D promulgated thereunder. COMPLAINT - 26 - ------------------------------------------------------------------------ IX. THE SEC COMMENTS ON THE AMENDMENT AND, RATHER THAN RESPOND TO THE SEC'S COMMENTS, THE GENERAL PARTNER WITHDRAWS THE AMENDMENT 58. Amendments filed to Form 8-A Registration Statements, particularly those filed years after the initial filing of the Registration Statement, often do not receive comments by the Staff of the SEC. Contrary to the expectations of the Fox Defendants, the Staff of the SEC did comment on the Amendment that the Partnership filed with the SEC on July 26, 1993. The Staff of the SEC issued its comments by its letter dated August 6, 1993. One of the questions asked by the Staff of the General Partner was why the Partnership was separating the Residual Interest from the Notes "in view of the statement [in the Amendment] that it is unlikely that such residual interest will ever be paid." 59. The Staff's letter of comments on the Amendment froze the Wheatley and Fox Defendants. The SEC's question quoted above went to the heart of the Tender Offer scheme. None of the Wheatley or Fox Defendants wanted to respond to the SEC's question after extensive consultation between the Wheatley and Fox Defendants, the Fox Defendants caused the Partnership to withdraw the Amendment from the SEC by the Partnership's counsel's letter of August 13, 1993. Counsel stated, as a pretense, that the reason for the withdrawal of the Amendment was the unavailability of the SEC's Form 15 for use in de-registering the Notes under the Exchange Act. This explanation was false, since counsel knew at the time the Amendment was filed that Form 15 was not available to the Partnership. (Form 15 is an SEC form that a registrant can file to de-register a class of equity securities registered under the Exchange Act if, inter alia, the number of holders of the COMPLAINT - 27 - ------------------------------------------------------------------------ registered security is less than 500 persons. At the time the Amendment was filed with the SEC, the number of Noteholders far exceeded 500.) In its August 13, 1993 letter withdrawing the Amendment, counsel did not inform the SEC that the Wheatley and Fox Defendants were about to launch the Tender Offer, and did not inform the SEC that the Wheatley and Fox Defendants would conduct the Tender Offer without complying with Section 14(d) of the Exchange Act and Regulation 14D promulgated thereunder. 60. With the Partnership's withdrawal of the Amendment, the Notes remained equity securities registered under Section 12(g) of the Exchange Act, as they had been since February 1981. The Notes would remain registered as equity securities throughout the period of time (August 20, 1993 through November 29, 1993) that the Tender Offer was outstanding. 61. The Fox Defendants had been planning for some form of tender offer designed to reduce the amount of the Partnership's indebtedness owed to the Noteholders since at least November 1991. The Fox Defendants had been negotiating with NPI and defendant Ashner over the terms of a sale of control of the General Partner of the Partnership and other limited partnerships managed by the Fox Defendants since October 1992. The Notes were due June 30, 1994. Given the momentum behind the proposed Tender Offer, and the benefits it held out for the Fox and Wheatley Defendants, the Wheatley and Fox Defendants decided to proceed with the Tender Offer anyway, and ignore the filing requirements of Schedule 14D-l and Schedule 14D-9 and the dissemination requirements of Rules 14d- 6 and 14d-9 (paragraph 56). COMPLAINT - 28 - ------------------------------------------------------------------------ 62. The General Partner caused the Partnership to enter into an agreement with Wheatley relating to the Tender Offer, referred to in Wheatley's Tender Offer Statement as the "Tender Agreement." A draft of the Tender Agreement had been negotiated by the parties prior to the filing of the Amendment with the SEC on July 26, 1993. This draft of the Tender Agreement, dated July 21, 1993, expressly conditioned the commencement of the Wheatley Tender Offer upon (i) Northern Trust CA's agreeing to enter into the Seventh Supplemental Indenture, and (ii) the effectiveness of the Amendment filed with the SEC de-registering the Notes as equity securities under Section 12(g) of the Exchange Act. In the final form of the Tender Agreement, dated August 19, 1993, just six days after the SEC commented upon the Amendment, these two conditions were deleted. The first was deleted because, by this time, Northern Trust CA had agreed to enter into the Seventh Supplemental Indenture; the second condition was deleted from the Tender Agreement because, with the withdrawal of the Amendment, the Notes were not to be de-registered as equity securities under Section 12(g) of the Exchange Act. 63. Wheatley prepared, and the Fox Defendants reviewed and commented upon, several drafts of the Tender Offer Statement referred to in paragraph 65 below. All drafts of the Tender Offer Statement prior to August 6, 1993, the date of the SEC's comment letter on the Amendment, set forth, as two conditions to Wheatley's commencing the Tender Offer, an agreement by Northern Trust CA to enter into the Seventh Supplemental Indenture, and the effectiveness of the Partnership's Amendment de-registering the Notes as equity securities under Section 12(g) of the Exchange Act. After the Wheatley and Fox Defendants agreed to withdraw the COMPLAINT - 29 - ------------------------------------------------------------------------ Amendment from the SEC, the condition stated in the Tender Offer Statement that commencement of the Tender Offer would be subject to de-registration of the Notes as equity securities under Section 12(g) was deleted. 64. Northern Trust CA knew, or had reason to know (because the Residual Interest feature of the Notes was worthless) that the Seventh Supplemental Indenture had no business purpose and that its purpose was to pave the way for Wheatley to make, and the Partnership to respond to, the Tender Offer without compliance with Section 14(d) of the Exchange Act and the rules and regulations promulgated thereunder. Northern Trust CA knew, or had reason to know (because its counsel had received a draft of the Tender Offer Statement with the stated condition that the Tender Offer would not be commenced unless the Amendment de-registering the Notes as Section 12(g) securities was declared effective by the SEC, and because its counsel had received a later draft of the Tender Offer Statement showing this condition to have been deleted), that the Partnership had withdrawn its Amendment filed with the SEC to de- register the Notes as Section 12(g) securities. Northern Trust CA did not object to the withdrawal of the Amendment. Northern Trust CA did not withdraw its consent to the Seventh Supplemental Indenture. Northern Trust CA did not object to Wheatley's proceeding with the Tender Offer without complying with Section 14(d)(1) of the Exchange Act and Regulation 14D promulgated thereunder. Northern Trust CA did not oppose the General Partner's failure, for and on behalf of the Partnership, to file the Partnership's response statement (paragraph 77 hereof) with the SEC pursuant to the provisions of Section 14(d)(4) of the Exchange Act COMPLAINT - 30 - ------------------------------------------------------------------------ and Regulation 14D promulgated thereunder. Northern Trust CA did not change its stated position of neutrality in connection with the Tender Offer (paragraph 81 hereof). X. THE TENDER OFFER A. Terms of the Tender Offer 65. The Tender Offer for the Notes was made by Wheatley by its Offer to Purchase for Cash up to $4,920,750 of the Outstanding Notes, dated August 20, 1993 (hereinafter, the "Tender Offer Statement") (the offer made by the Tender Offer Statement is referred to herein as the "Tender Offer"). A true and correct copy of the Tender Offer Statement is attached hereto as Exhibit A. The Tender Offer extended from August 20, 1993 through November 29, 1993. 66. As of the date of commencement of the Tender Offer, an aggregate of $6,560,683 in principal amount of the Notes remained outstanding (or $333.86 per $1,000 Note). As of June 30, 1993, the aggregate amount of the outstanding but unpaid interest on the Notes totalled $3,773,189 (or $192.01 per $1,000 Note). Wheatley offered $75 in cash per $333.86 of the outstanding principal amount of the Notes, and nothing for the accrued but unpaid interest on the Notes. Wheatley thus offered 14 cents on the dollar for the principal and accrued but unpaid interest ($525.87 per Note) owed by the Partnership on the Notes as of June 30, 1993. The Tender Offer was for up to 75% (or $4,920,750) of the outstanding principal amount of the Notes. 67. The Tender Offer was conditional upon a minimum of $3,280,500 in outstanding principal amount of the Notes being tendered, representing approximately 50% of the principal amount of the Notes then outstanding. COMPLAINT - 31 - ------------------------------------------------------------------------ 68. The Tender Offer did not include the Noteholders' right to Residual Interest on the Notes. The right to receive such Residual Interest remained with the Noteholders, regardless of whether or not they tendered their Notes to Wheatley pursuant to the Tender Offer. 69. The holders of $3,341,000 in outstanding principal amount of the Notes, including plaintiff and her mother, tendered their Notes in response to the Tender Offer (representing 50.92% of the outstanding principal amount of the Notes). The interest accrued but unpaid on the Notes tendered to Wheatley totalled $2,169,000. The principal and interest on the Notes acquired by Wheatley thus totalled $5,510,000. On or about December 6, 1993, Wheatley paid $750,539 for the Notes tendered to it. 70. At the time the Tender Offer was begun, the outstanding principal and accrued but unpaid interest due on all of the outstanding Notes aggregated $10,333,872. On said date, the aggregate of the principal plus accrued but unpaid interest on the GP Advances that had been made by FRI and by FCMC to the Partnership exceeded $9,300,000, at least $8 million of which was subordinate in right of payment to the prior payment of the principal and all accrued but unpaid interest on the Notes. 71. At the time the Tender Offer was made, the Fox Defendants believed that the Partnership's remaining equity in its real properties and other assets was not sufficient to discharge both the remaining principal and unpaid interest on the Notes and the remaining principal and unpaid interest on the GP Advances. 72. The Fox Defendants participated in the planning of the Tender Offer and approved the same. The Tender Offer Statement was reviewed and approved by the Fox Principals and/or their advisors prior to its dissemination to the Noteholders. COMPLAINT - 32 - ------------------------------------------------------------------------ 73. The purpose of the Tender Offer was to reduce the Partnership's obligations under the Notes so as to enhance the Partnership's ability to fully discharge the GP Advances and all interest accrued but unpaid thereon. There was no legitimate business reason, from the standpoint of the Noteholders, for the making of the Tender Offer. 74. Wheatley made the Tender Offer as an accommodation to the Fox Defendants in order to facilitate the negotiations with the Fox Defendants over the acquisition and control by NPI and its affiliates of the Partnership and the other partnerships controlled and managed by the Fox Principals. Pursuant to the terms of the Tender Offer, Wheatley agreed that, with respect to all Notes it acquired pursuant thereto, it would not, on any redemption thereof, receive a payment equal to the remaining principal of the Notes and the accrued but unpaid interest thereon, but would only receive a payment from the Partnership equal to the amount it had paid for the Notes, pursuant to the Tender Offer, plus costs and expenses, plus a rate of return thereon equal to 10% per annum, compounded quarterly. Wheatley and the Fox Defendants agreed that if affiliates of Wheatley did not, in fact, acquire control of Montgomery Realty Co., the General Partner of the Partnership, then the foregoing limitation on Wheatley's investment returns from the Notes it acquired pursuant to the Tender Offer would not apply and Wheatley would be entitled to no less than an investment return of 30% per annum on its investment in the Notes. 75. The funds used by Wheatley to consummate the Tender Offer were supplied by its shareholders, defendants Ashner, Lifton, and Queler. These individuals do not make capital investments of their funds with expected returns of 10% per annum or less, but only COMPLAINT - 33 - ------------------------------------------------------------------------ invest their funds in investment opportunities with expected returns of greater than 10% per annum. 76. The Tender Offer Statement (Exhibit A hereto) is a model of obfuscation. It was designed to be unread. It is not written in plain English. It does not explain, in candor, what the Tender Offer is about. It does not explain that the purpose of the Tender Offer was to enable the General Partner and its affiliates to recover the GP Advances, with interest at the expense of the Noteholders who tendered their Notes to Wheatley. The Tender Offer Statement does not contain, as it would have had to contain had Wheatley filed a Schedule 14D-1 with the SEC in connection with the Tender Offer, any discussion of Wheatley's or its affiliate, NPI'S, plans with respect to a sale or transfer of a material amount of the properties of the Partnership. At page five of the Tender Offer Statement, Wheatley repeats the purported conclusion of the General Partner of the Partnership "that as a result of current market conditions it [the General Partner] believes that the market value of the [Partnership's] properties will be maximized if the properties are held for a longer period of time." Wheatley does not follow this statement with any discussion of its (or its affiliate's) plans with respect to the real properties of the Partnership. The Wheatley Defendants had already agreed with the Fox Defendants that Wheatley would proceed, promptly after its affiliate, NPI, acquired control of the Partnership, to a sale of the Partnership's properties. 77. By two letters dated August 24, 1993, the General Partner caused the Partnership to send a response to the Tender Offer to the Noteholders. True and correct copies of these letters are attached hereto as Exhibits B and C, respectively. The first response is a two-page letter purporting to summarize the pros and COMPLAINT - 34 - ------------------------------------------------------------------------ cons of the Tender Offer for the Noteholders. The longer statement was designed to comply with the provisions of SEC Rule 14e-2, 17 C.F.R. § 240.14e-2, which requires a target company, whether or not it is obligated to comply with Schedule 14D-9, to transmit to the "target shareholders" a statement of its position with respect to the Tender Offer. Other than requiring, however, a statement of the target company's reasons for its position (including the inability to take a position), Rule 14e-2 does not set forth in any detail the contents of the statement prepared thereunder. Unlike Schedule 14D-9, Rule 14e-2 does not require the target company to disclose any agreements or understandings it may have with the tender offeror with respect to a sale of a material amount of the assets of the target company. The General Partner's 14e-2 statement (Exhibit C hereto) contains no such discussion. Indeed, it states: Due to the current real estate sales environment, the General Partner continues to believe that the market value of the Properties [of the Partnership] will be maximized if the Properties are held for a longer period to allow market conditions to improve. See Exhibit C, page 9. 78. The Tender Offer extended from August 20, 1993 through November 29, 1993. Wheatley consummated the Tender Offer by purchasing the Notes tendered thereunder on or about December 6, 1993. No later than November 29, 1993, NPI, Wheatley's affiliate, had agreed with the Fox Defendants to sell one or more real properties of the Partnership promptly after NPI acquired control of the Partnership so as to generate sufficient proceeds to repay the GP Advances. No such agreement is disclosed either in the Tender Offer Statement or in the General Partner's responses thereto (Exhibits B and C hereto). COMPLAINT - 35 - ------------------------------------------------------------------------ 79. SEC Rule 14d-3(b), 17 C.F.R. § 240.14d-3(b), requires a tender offeror to amend its Schedule 14D-1 if a material change occurs in any of the information set forth in the Schedule 14D-1, and SEC Rule 14d-6, 17 C.F.R. § 240.14d-6, requires the tender offeror to distribute such revised information to the target shareholders. SEC Rule 14d-9, 17 C.F.R. § 240.14d-9, imposes a continuing obligation upon a target company to amend or revise its Schedule 14D-9 as is necessary to make the statements therein, in light of the circumstances under which they are made, not misleading, and Rule 14d-9 requires the target company to distribute such revised information to the persons to whom the tender offer is made. 80. The Tender Offer represents a cynical exploitation by the Fox and Wheatley Defendants of the Noteholders' fear that they might not receive a return of their remaining investment in the Notes, plus interest. The Fox and Wheatley Defendants knew, at the time of the making of the Tender Offer, that the Noteholders held relatively small amounts ($5,000 to $10,000) of Notes. The Notes had been sold to the Noteholders on the basis that they offered an investment providing income, with safety of principal. Since April 1989, no payments of interest or principal had been made on the Notes. The financial reports that the General Partner had for years distributed to the Partnerships' Limited Partners and Noteholders reported gloomy financial results and had cautioned the Noteholders that they might not receive a return of the remaining principal balance of their Notes or the interest accrued but unpaid thereon. For the year ended December 31, 1992 (the year just prior to the year the Tender Offer was made), the Partnership reported a negative net worth in excess of $18 million, and its financial statements were accompanied by a report of the Partnership's COMPLAINT - 36 - ------------------------------------------------------------------------ independent auditors expressing "substantial doubt" about the Partnership's ability to continuing as a going concern. The warning to the Noteholders that they might not receive a return of the remaining principal balance of their Notes or any interest thereon was repeated in the Tender Offer Statement. B. Conduct of the Trustee 81. The only reference in the Tender Offer Statement to the Trustee is the following, at page 8: The Trustee has not passed upon or approved or disapproved the Offer, and the Trustee does not make any recommendation to the Noteholders with respect to whether they should or should not tender their Notes pursuant to the Offer. The "Trustee" is not otherwise identified, nor is any address or telephone number given for the Trustee to enable the Noteholders who may have had questions concerning the Tender Offer to discuss the same with the Trustee. The Trustee did not otherwise communicate, by letter or otherwise, with the Noteholders with respect to the Tender Offer. 82. Northern Trust CA knew, or had reason to know, that the Seventh Supplemental Indenture had no business purpose, and that its purpose was to pave the way for Wheatley to make, and the Partnership to respond to, the Tender Offer without complying with Section 14(d) of the Exchange Act and Regulation 14D promulgated thereunder. Northern Trust CA knew, or had reason to know, that the General Partner caused the Partnership to withdraw the Amendment filed with the SEC for the purpose of de-registering the Notes as equity securities registered under Section 12(g) of the Exchange Act (paragraph 59). Northern Trust CA knew, or had reason COMPLAINT - 37 - ------------------------------------------------------------------------ to know, that, at the time it made the Tender Offer, Wheatley had not filed a Schedule 14D-1 with the SEC. Northern Trust CA knew, or had reason to know, that, in connection with its response to the Tender Offer Statement dated August 24, 1993, the General Partner had not filed, on its own behalf or on behalf of the Partnership, a Schedule 14D-9 with the SEC. In response to the Partnership's withdrawal of the Amendment seeking to de-register the Notes as equity securities with the SEC, Northern Trust CA did not withdraw its consent to the Seventh Supplemental Indenture. Northern Trust CA took no steps whatsoever to oppose Wheatley's or the General Partner's failure to abide by the provisions of Section 14(d) of the Exchange Act and the rules and regulations promulgated by the SEC thereunder in connection with the Tender Offer. 83. Had Northern Trust CA (i) refused to enter into the Seventh Supplemental Indenture, or (ii) conditioned its agreement to the Seventh Supplemental Indenture upon Wheatley's compliance with Section 14(d) of the Exchange Act and Regulation 14D promulgated thereunder in connection with the Tender Offer, or (iii) opposed Wheatley's commencement and implementation of the Tender Offer without compliance with Section 14(d) of the Exchange Act and Regulation 14D, Wheatley would not have made or would not have consummated the Tender Offer. XI. REPAYMENT OF THE GP ADVANCES AND REDEMPTION OF THE NOTES 84. By December 6, 1993, the date on which the Tender Offer was consummated and affiliates of NPI assumed the management and COMPLAINT - 38 - ------------------------------------------------------------------------ control of the Partnership, NPI and/or its affiliates were actively seeking to sell four of the five remaining properties of the Partnership. 85. In early 1994, the Partnership sold three of its remaining five properties. On February 23, 1994, the Partnership sold Valley View Apartments. After payment of mortgage indebtedness and expenses, this sale generated $1,069,000 in cash to the Partnership. On March 18, 1994, the Partnership sold Plaza San Antonio for $22,300,000. After payment of mortgage indebtedness and expenses, this sale generated $13,258,000 in cash to the Partnership. On the same date, March 18, 1994, the Partnership sold Corporate Center Business Park for $1,500,000. After payment of mortgage indebtedness and expenses, this sale generated $130,000 in cash to the Partnership. The sale of these three properties thus generated $14,457,000 in cash to the Partnership. 86. In March and May 1994, the Partnership paid $8,473,000 and $989,000, respectively, for a total of $9,462,000, from the proceeds of the sale of its three real properties, in full repayment of GP Advances and all accrued but unpaid interest thereon. These payments by the Partnership were made to an affiliate of Wheatley, which, in turn, paid over the monies to affiliates of FRI for the benefit of the Fox Principals. 87. On March 20, 1994, the Partnership called the outstanding Notes for redemption, paying, in full (other than to Wheatley as to the Notes held by it), the outstanding principal balance of the Notes plus all accrued but unpaid interest thereon. Pursuant to its agreement with the Fox Defendants, Wheatley was paid $1,189,000 by the Partnership to redeem the Notes it had acquired pursuant to COMPLAINT - 39 - ------------------------------------------------------------------------ the Tender Offer, representing reimbursement of the $750,539 it had paid to the Noteholders who tendered and sold their Notes to Wheatley, plus $438,461, representing the expenses incurred by it in connection with the Tender Offer and a return of 10% per annum on the monies Wheatley had invested to purchase the Notes and to conduct the Tender Offer. The Partnership owed $5,510,000 in principal and accrued interest on the Notes held by Wheatley and redeemed by the Partnership for $1,189,000. 88. None of the net proceeds from the Partnership's sale of Valley View Apartments, Plaza San Antonio, or Corporate Center Business Park was distributed to the Limited Partners of the Partnership. XII. THE STATE ACTION 89. Plaintiff and her mother, Dorothy M. Kaufman, filed their Complaint challenging the Tender Offer in Santa Clara County Superior Court on August 17, 1995 (Case No. CV 751777) (the "State Action"). Counsel for plaintiffs in the State Action are counsel for plaintiff in this action -- Fotenos & Suttle, P.C. and Richard A. Finberg of Malakoff, Doyle & Finberg. The defendants named in the State Action are the same defendants named in this action. The State Action alleges breach of fiduciary duty by the Fox and Wheatley Defendants in planning and implementing the Tender Offer, interference with prospective economic advantage by the Wheatley and Fox Defendants, and violation of the Trust Indenture Act, breach of contract, and breach of fiduciary duty against Northern Trust CA arising out of its failure to properly investigate and oppose the Tender Offer. The State Action contains no cause of action that the defendants therein violated any provision of the Exchange Act or the Securities Act. COMPLAINT - 40 - ------------------------------------------------------------------------ 90. The Fox and Wheatley Defendants demurred to the causes of action naming them. The demurrers were heard by the Court (the Honorable Peter G. Stone) on December 14, 1995. On March 14, 1996, Judge Stone overruled the Fox and Wheatley Defendants' demurrers, other than the Fox Defendants' demurrer charging them with aiding and abetting Wheatley's interference with the Noteholders' prospective economic advantage. Plaintiffs elected to proceed on the Complaint, in light of Judge Stone's ruling on the demurrers, without amending the same. 91. Plaintiffs filed their motion for class certification with the Court on February 6, 1996. Both plaintiffs were deposed on March 12, 1996. The motion for class certification was vigorously contested by the defendants. The motion was heard by Judge Stone on April 18, 1996. On July 11, 1996, Judge Stone entered his Order granting plaintiffs' motion for class certification. 92. With the filing of their demurrers to the Complaint, defendants in the State Action moved for a stay of plaintiffs' discovery. The motion was referred to Judge Stone, who took the matter under submission at the hearing on defendants' demurrers December 14, 1995. Judge Stone's Order on defendants' demurrers (March 14, 1996) was silent with regard to defendants' motion for a stay of discovery. The parties thereafter entered into a stipulation providing for the commencement of discovery. Document discovery commenced on or about April 19, 1996. Prior to document discovery, plaintiffs' counsel was unaware that the Fox Defendants had withdrawn the Partnership's Amendment (paragraph 59 hereof) filed with the SEC to de-register the Notes as equity securities under Section 12(g) of the Exchange Act. At his deposition held on June 19, 1996, David C. Frankel, formerly an associate with Pettit COMPLAINT - 41 - ------------------------------------------------------------------------ & Martin, counsel to the Partnership, confirmed that the General Partner neither sought nor obtained any order from the SEC exempting Wheatley or the Partnership from the requirements of Section 14(d) of the Exchange Act or Regulation 14D thereunder with respect to the Tender Offer. First Claim For Relief Violation of Section 14(d)(1) of the Exchange Act (Against the Wheatley Defendants) 93. Plaintiff realleges paragraphs 1 through 92 herein. 94. Section 14(d)(1) of the Exchange Act, 15 U.S.C. § 78n(d)(1), provides that it is unlawful for any person, directly or indirectly, by use of the mails or by any means or instrumentality of interstate commerce, to make a tender offer for, or a request or an invitation for tenders of, any class of equity security which is registered pursuant to Section 12 of the Exchange Act if, after consummation thereof, such person would, directly or indirectly, be the beneficial owner of more than 5% of such class, unless at the time that copies of the tender offer or request are first published or transmitted to the security holders, such person files with the SEC such information as the SEC requires by its rules and regulations. Section 14(d)(1) further provides that all requests or invitation for tenders shall contain such of the information contained in the tender offeror's filings with the SEC as the SEC by its rules and regulations prescribes. 95. Pursuant to the authority granted to it by Section 14(d)(1) of the Exchange Act, the SEC has promulgated Regulation 14D, Exchange Act Rules 14d-1 et seq., 17 C.F.R. § 240.14d-1 et seq. Pursuant to Rule 14d-3, 17 C.F.R. § 240.14d-3, no person COMPLAINT - 42 - ------------------------------------------------------------------------ shall make a tender offer for more than 5% of the class of any subject company's equity securities registered under Section 12(g) of the Exchange Act unless, as soon as practicable on the date of commencement of the tender offer, the tender offeror files with the SEC Schedule 14D-1, 17 C.F.R. § 240.14d-100, including all exhibits thereto. 96. Pursuant to SEC Rule 14d-3(b), tender offerors are required to file an amended Schedule 14D-1 with the SEC if a material change occurs in the information set forth in the Schedule 14D-1 on file with the SEC. 97. Pursuant to the instructions to Schedule 14D-1, upon termination of a tender offer, the tender offeror is to promptly file with the SEC a final amendment to its Schedule 14D-1 disclosing all material changes in the items of the Schedule and stating that the tender offer has terminated, the date of such termination, and the results of such tender offer. 98. Pursuant to Schedule 14D-1, 17 C.F.R. § 240.14d-100, information filed on such Schedule with the SEC is to include, inter alia, a description of all contracts and negotiations with the target company and its officers and directors within the past three years; the purpose or purposes of the tender offer; any plans or proposals of the tender offeror which would result in a sale or transfer of a material amount of the assets of the target company; and any present or proposed material contracts, arrangements, understandings, or relationships between the tender offeror or its affiliates and the target company or any of its affiliates. In addition, tender offerors filing Schedules 14D-1 are to file as exhibits thereto the tender offer material proposed to be sent to the target shareholders, and any contracts or agreements relating to the tender offer between the tender offeror and the target company or its management. COMPLAINT - 43 - ------------------------------------------------------------------------ 99. Pursuant to Rule 14d-6, 17 C.F.R. § 240.14d-6, a tender offeror is required to disclose to the persons to whom the tender offer is made that information required by Rule 14d-6, including the information required to be disclosed on Schedule 14D-1 as summarized in paragraph 98 above. 100. Wheatley commenced its Tender Offer for the Notes by its Tender Offer Statement (Exhibit A hereto) dated and distributed to the Noteholders on or about August 20, 1993. In making the Tender Offer, Wheatley used the mails to distribute the Tender Offer Statement and related materials to the Noteholders. The Noteholders resided in 48 states, with more Noteholders residing in California than in any other state. By the Tender Offer, Wheatley sought more than 5% of the outstanding Notes. At the time Wheatley made its Tender Offer for the Notes, the Notes were registered as equity securities pursuant to Section 12(g) of the Exchange Act. 101. In connection with the Tender Offer, Wheatley did not file a Schedule 14D-1 with the SEC, nor did Wheatley file any of the information or material required by Schedule 14D-1 to be filed with the SEC. The Tender Offer Statement itself did not contain the information required by Rule 14d-6. Wheatley did not file a Schedule 14D-1 with the SEC upon termination of the Tender Offer on or about November 29, 1996. 102. The Tender Offer Statement distributed by Wheatley to the Noteholders contains no discussion, inter alia, of any plans, agreements, arrangements, or understandings between Wheatley and its affiliates, including NPI, and one or more of the Fox Defendants pertaining to a sale of the Partnership's properties upon NPI's assumption of control of the management of the Partnership. COMPLAINT - 44 - ------------------------------------------------------------------------ 103. The Tender Offer represented a tender offer within the meaning of Section 14(d)(1) of the Exchange Act for an equity security registered under Section 12(g) of the Exchange Act. 104. In failing to comply with the requirements of Section 14(d)(1) and Regulation 14D promulgated thereunder, Wheatley violated the provisions of Section 14(d)(1) of the Exchange Act. 105. Had Wheatley been confronted with the choice of conducting the tender offer in compliance with Section 14(d)(1) of the Exchange Act and Regulation 14D promulgated thereunder, or not making the Tender Offer, Wheatley would not have made the Tender Offer. Had Wheatley not made the Tender Offer, plaintiff and members of the Plaintiff Class would have received payment in full of the outstanding principal of the Notes, and all accrued but unpaid interest thereon, on or about March 20, 1994. 106. Each of defendants Ashner, Lifton, and Queler participated in structuring and implementing the Tender Offer, as alleged in paragraphs 65 through 80 herein. Wheatley was specifically organized by defendants Ashner, Lifton, and Queler to make the Tender Offer. Each of Ashner, Lifton, and Queler supplied the capital of Wheatley that Wheatley used to make the Tender Offer. Each was a shareholder, director, and officer of Wheatley at all times relevant to this Complaint. Defendants Ashner, Lifton, and Queler received substantial benefits from the consummation of the Tender Offer. Each of defendants Ashner, Lifton, and Queler was, at all times relevant to this Complaint, a controlling person of Wheatley within the meaning of Section 20(a) of the Exchange Act, 15 U.S.C. § 78t. Each of defendants Ashner, COMPLAINT - 45 - ------------------------------------------------------------------------ Lifton, and Queler is liable for the violation of the Exchange Act alleged to have been committed by Wheatley herein. WHEREFORE, plaintiff prays for judgment against the Wheatley Defendants, and each of them, as hereinafter set forth. Second Claim for Relief Willful Violation of Section 14(d)(1) of the Exchange Act (Against Wheatley Ventures, Inc. and Michael L Ashner) 107. Plaintiff realleges paragraphs 1 through 106 herein. 108. The violations of Section 14(d)(1) of the Exchange Act and Regulation 14D thereunder alleged to have been committed by Wheatley in paragraphs 94 through 104 hereof were willful. The Wheatley Defendants were represented, in connection with the Tender Offer, by experienced counsel, Rosenman & Colin, LLP, New York, New York. The terms of the Tender Offer and Wheatley's participation therein had been extensively negotiated with the Fox Defendants. The person who represented the Wheatley Defendants in negotiations with the Fox Defendants over the Tender Offer was defendant Michael L. Ashner. 109. The Wheatley and Fox Defendants concluded early on in the negotiations over the Tender Offer that they would avoid the filings required by the SEC pursuant to Regulation 14D. The Fox Defendants had been planning some form of tender offer since at least November 1991 with the objective of reducing the amount of the Partnership's indebtedness to the Noteholders so as to enhance the Partnership's ability to repay the GP Advances and all accrued COMPLAINT - 46 - ------------------------------------------------------------------------ but unpaid interest thereon. The Notes were due and payable June 30, 1994. The performance of the properties of the Partnership was steadily improving. The Wheatley and Fox Defendants did not have much time in which to consummate the Tender Offer before the Notes would become due and payable. The Wheatley and Fox Defendants did not want to be obligated to disclose to the SEC or to the Noteholders the understandings they had reached with respect to a sale of the properties of the Partnership and the use of the net proceeds therefrom to repay the GP Advances. Such agreements and understandings would have to be disclosed if Wheatley complied with the provisions of Section 14(d)(1) and Regulation 14D. Moreover, any filing with the SEC would be subject to comment by the Staff of the SEC. Responding to such comments would further delay commencement of the Tender Offer and/or might result in the abandonment of the Tender Offer if the Staff of the SEC had discovered and then insisted upon a candid explanation of the Fox and Wheatley Defendants' motivation for making the Tender Offer. 110. By the very Tender Agreement they negotiated setting forth the terms and provisions pursuant to which Wheatley would make and implement the Tender Offer, the parties had agreed, prior to receipt of the SEC's August 6, 1993 comment letter on the Partnership's Amendment seeking to de-register the Notes as Section 12(g) equity securities, that, as a condition to commencement of the Tender Offer, the Notes would have to be de-registered as equity securities under Section 12(g) of the Exchange Act. In the drafts of the Tender Offer Statement that the Wheatley and Fox Defendants had been working on prior to August 6, 1993, this condition to commencement of the Tender Offer was repeated -- namely, that the Tender Offer would not commence until the Notes COMPLAINT - 47 - ------------------------------------------------------------------------ were de-registered as equity securities under Section 12(g) of the Exchange Act. 111. Nevertheless, given the momentum of the proposed Tender Offer, and given the benefits it held out for the Fox and Wheatley Defendants, when the Staff of the SEC asked questions that these defendants did not want to answer, the Fox and Wheatley Defendants agreed to the withdrawal of the Amendment seeking to de-register the Notes as Section 12(g) equity securities, and agreed to proceed with the Tender Offer. Thus, in commencing and implementing the Tender Offer, Wheatley willfully violated the provisions of Section 14(d)(1) of the Exchange Act and Regulation 14D promulgated thereunder. Had Wheatley been confronted with the choice of proceeding with the Tender Offer and complying with the provisions of Section 14(d)(1) of the Exchange Act and Regulation 14D thereunder, or abandoning the Tender Offer, Wheatley would have abandoned the Tender Offer. Had Wheatley not made or had it abandoned the Tender Offer, then plaintiff and the members of the Plaintiff Class would have received from the Partnership, on or about March 20, 1994, payments equal to the full outstanding principal of their Notes, together with all accrued but unpaid interest thereon. 112. Defendant Ashner represented the Wheatley Defendants in their negotiations with the Fox Defendants over the Tender Offer. Ashner was aware of the Partnership's filing on or about July 26, 1993 of an Amendment to its Registration Statement on Form 8-A so as to de-register the Notes as equity securities under Section 12(g) of the Exchange Act. Ashner participated in the discussions between the Wheatley and Fox Defendants when the Partnership received the SEC's August 6, 1993 comment letter raising questions COMPLAINT - 48 - ------------------------------------------------------------------------ with respect to the Amendment (paragraphs 58-59). Ashner decided, for and on behalf of Wheatley, Lifton, and Queler, to approve of the Partnership's withdrawal of the Amendment with the SEC and to proceed with the Tender Offer notwithstanding such withdrawal and notwithstanding that with the withdrawal, Wheatley would, by the Tender Offer, make a tender offer for equity securities registered under Section 12 of the Exchange Act. Ashner, for and on behalf of Wheatley, made the decision to proceed with the Tender Offer without making any of the filings required by Section 14(d)(1) of the Exchange Act or Regulation 14D thereunder. In inducing Wheatley to willfully violate Section 14(d)(1) of the Exchange Act and Regulation 14D thereunder, Ashner himself willfully violated Section 14(d)(1) of the Exchange Act and Regulation 14D thereunder. WHEREFORE, plaintiff prays for judgment against defendants Wheatley Ventures, Inc. and Michael L. Ashner, and each of them, as hereinafter set forth. Third Claim for Relief Violation of Section 14(d)(4) of the Exchange Act (Against the Fox Defendants) 113. Plaintiff realleges paragraphs 1 through 92 herein. 114. Section 14(d)(4) of the Exchange Act, 15 U.S.C. § 78n(d)(4), provides that any solicitation or recommendation to the persons to whom a tender offer governed by Section 14(d)(1) is made to accept or reject the tender offer shall be made in accordance with such rules and regulations as the SEC may prescribe as necessary or appropriate in the public interest or for the protection of investors. COMPLAINT - 49 - ------------------------------------------------------------------------ 115. Pursuant to the authority granted to it by Section 14(d)(1) and Section 14(d)(4) of the Exchange Act, the SEC has promulgated Regulation 14D, Exchange Act Rules 14d-1 et seq., 17 C.F.R. § 240.14d-1 et seq. Pursuant to SEC Rule 14d-9, 17 C.F.R. § 240.14d-9, target companies responding to a tender offer must file with the SEC a Schedule 14D-9, 17 C.F.R. § 240.14d-101, and distribute the information set forth therein and other information as required by Rule 14d-9 to the persons to whom the tender offer is made. 116. Pursuant to Rule 14d-9 and Schedule 14D-9, target companies are required to file an amended Schedule 14D-9 with the SEC if a material change occurs in the information set forth in the Schedule 14D-9 on file with the SEC, and to transmit such corrected information to the persons to whom the tender offer is made. 117. Pursuant to Schedule 14D-9, 17 C.F.R. § 240.14d-101, information to be filed by a target company on said Schedule with the SEC is to include, inter alia, information on any negotiations being undertaken or underway between the target company and the person or persons making the tender offer (or their affiliates) which relates to or would result in a sale of a material amount of assets by the target company, a description of any material contract, agreement, arrangement, or understanding between the target company and its partners or affiliates, and the tender offeror or its officers or affiliates, and such information as may be necessary to make the required disclosures of Schedule 14D-9, in light of the circumstances under which they are made, not materially misleading. In addition, target companies filing a Schedule 14D-9 with the SEC must include, as an exhibit thereto, any contract, agreement, arrangement, or understanding described in the Schedule. The foregoing information required by Schedule 14D-9 COMPLAINT - 50 - ------------------------------------------------------------------------ is required to be transmitted to the persons to whom the tender offer is made by Rule 14d-9. 118. In connection with the Tender Offer, the General Partner, neither on its own behalf nor on behalf of the Partnership, filed a Schedule 14D-9 with the SEC, nor did the General Partner file, on its own behalf or on behalf of the Partnership, any of the information or material required by Schedule 14D-9 with the SEC. The Partnership's response to the Tender Offer (Exhibits B and C hereto) did not contain all of the information required by Schedule 14D-9. 119. The response statements distributed by the General Partner to the Noteholders (Exhibits B and C hereto) contain no discussion, inter alia, of any plans, agreements, arrangements, or understandings between Wheatley and its affiliates, including NPI, and one or more of the Fox Defendants pertaining to a sale of the Partnership's properties upon NPI's assumption of control of the management of the Partnership. The response statements contain no discussion of the fact that the Fox Defendants had, since at least November 1991, been exploring ways and means, including some form of tender offer, to reduce the amount of the indebtedness owed by the Partnership to the Noteholders so as to enhance the Partnership's ability to repay the GP Advances, or the nature or extent of these studies and explorations. At no time prior to the termination of the Tender Offer (November 29, 1993) did the General Partner, on its own behalf or on behalf of the Partnership, amend or revise the Partnership's response statements (Exhibits B and C hereto) to disclose any plans, agreements, arrangements, or understandings between Wheatley or its affiliates, including NPI, and one or more of the Fox Defendants pertaining to a sale of the COMPLAINT - 51 - ------------------------------------------------------------------------ Partnership's properties upon NPI's assumption of control of the Partnership. 120. The Tender Offer represented a tender offer within the meaning of Section 14(d)(1) of the Exchange Act for an equity security registered under Section 12(g) of the Exchange Act. 121. The General Partner of the Partnership -- defendant Montgomery Realty Co. -- induced the Partnership to respond to Wheatley' Tender Offer without compliance with Section 14(d)(4) of the Exchange Act and Regulation 14D promulgated thereunder, and therefore the General Partner violated the provisions of Section 14(d)(4) of the Exchange Act and Regulation 14D promulgated thereunder. 122. As the general partners and controlling persons of Montgomery Realty Co., defendants FRI and Montgomery Realty Corp. are liable for the violation of the Exchange Act alleged to have been committed by Montgomery Realty Co. herein. As the individual partners and controlling persons of FRI and/or the officers and directors and controlling persons of Montgomery Realty Corp., defendants Cashin, Evans, Payne, McDowell, Stark, and Larson are liable for the violation of the Exchange Act alleged to have been committed by Montgomery Realty Co. herein. FRI is a general partnership and the managing partner of Montgomery Realty Co., the General Partner of the Partnership. Each of defendants Cashin, Evans, Payne, McDowell, Stark, and Larson was, at all times relevant to this Complaint, through December 6, 1993, an individual partner of FRI. The actions of the General Partner alleged herein with respect to the Seventh Supplemental Indenture, the filing of the Amendment with the SEC seeking to de-register the Notes as equity securities pursuant to Section 12(g) of the Exchange Act, COMPLAINT - 52 - ------------------------------------------------------------------------ the withdrawal of the Amendment from the SEC, the agreement with Wheatley with respect to the Tender Offer, and the General Partner's response to the Tender Offer, were all taken at the direction of FRI, the managing partner of the General Partner of the Partnership, and with the consent and approval of each of the individual partners of FRI. 123. Had the Wheatley and Fox Defendants been confronted with the choice of conducting the Tender Offer, and the Partnership's response, in compliance with 14(d) of the Exchange Act and Regulation 14D promulgated thereunder, or not proceeding with the Tender Offer, Wheatley would not have proceeded with the Tender offer. If Wheatley had not made or had abandoned the Tender Offer, plaintiff and the members of the Plaintiff Class would have received payment in full of the outstanding principal of the Notes and all accrued but unpaid interest thereon, on or about March 20, 1994. WHEREFORE, plaintiff prays for judgment against the Fox Defendants, and each of them, as hereinafter set forth. Fourth Claim For Relief Willful Violation of Section 14(d)(4) of the Exchange Act (Against Montgomery Realty Company--80, Fox Realty Investors, Jarold A. Evans, and Lisle W. Payne) 124. Plaintiff realleges paragraphs 1 through 92 and 114 through 123 herein. 125. The violations of Section 14(d)(4) of the Exchange Act and Regulation 14D thereunder alleged to have been committed by Montgomery Realty Co. in paragraphs 113 through 123 herein were willful. The Partnership was represented, in connection with the Tender Offer, by experienced counsel -- Pettit & Martin, San COMPLAINT - 53 - ------------------------------------------------------------------------ Francisco, California. The terms of the Tender Offer and Montgomery Realty Co.'s participation therein had been extensively negotiated by the Fox Defendants and the Wheatley Defendants. The persons who primarily represented the Fox Defendants in their negotiations with the Wheatley Defendants over the Tender Offer were defendants Jarold A. Evans and Lisle W. Payne. 126. The Wheatley and Fox Defendants concluded early on in the negotiations over the Tender Offer that they would avoid the filings required by the SEC pursuant to Regulation 14D. The Fox Defendants had been planning some form of tender offer since at least November 1991 with the objective of reducing the amount of the Partnership's indebtedness to the Noteholders so as to enhance the Partnership's ability to repay the GP Advances and all accrued but unpaid interest thereon. The Notes were due and payable June 30, 1994. The performance of the properties of the Partnership was steadily improving. The Wheatley and Fox Defendants did not have much time in which to consummate the Tender Offer before the Notes would become due and payable. The Wheatley and Fox Defendants did not want to be obligated to disclose to the SEC or to the Noteholders the understandings they had reached with respect to a sale of the properties of the Partnership and the use of the net proceeds therefrom to repay the GP Advances. The Fox Defendants did not want to disclose to the SEC or to the Noteholders that they had been exploring ways and means to reduce the Partnership's indebtedness to the Noteholders so as to enhance the Partnership's ability to repay the GP Advances since at least November 1991. Such agreements and understandings and studies would have to be disclosed if Montgomery Realty Co., on its own behalf or on behalf of the Partnership, complied with the provisions of Section COMPLAINT - 54 - ------------------------------------------------------------------------ 14(d)(4) of the Exchange Act and Regulation 14D. Moreover, any filing with the SEC would be subject to comment by the Staff of the SEC. Responding to such comments would further delay commencement and/or consummation of the Tender Offer and/or might result in the abandonment of the Tender Offer if the Staff of the SEC had discovered and then insisted upon a candid explanation of the Fox and Wheatley Defendants' motivation for making the Tender Offer. 127. By the very Tender Agreement they negotiated setting forth the terms and provisions pursuant to which Wheatley would make and implement the Tender Offer, Wheatley and Montgomery Realty Co. had agreed, prior to receipt of the SEC's August 6, 1993 comment letter on the Partnership's Amendment seeking to de- register the Notes as Section 12(g) equity securities, that, as a condition to commencement of the Tender Offer, the Notes would have to be de-registered as equity securities under Section 12(g) of the Exchange Act. In the drafts of the Tender Offer Statement that the Wheatley and Fox Defendants had been working on prior to August 6, 1993, this condition to commencement of the Tender Offer was repeated -- namely, that the Tender Offer would not commence until the Notes were de-registered as equity securities under Section 12(g) of the Exchange Act. 128. Nevertheless, given the momentum of the proposed Tender Offer, and given the benefits it held out for the Fox and Wheatley Defendants, the Wheatley and Fox Defendants, when the Staff of the SEC asked questions that these defendants did not want to answer, decided to withdraw the Amendment seeking to de-register the Notes as Section 12(g) equity securities, and to proceed with the Tender Offer. Defendants Evans and Payne encouraged Wheatley to proceed COMPLAINT - 55 - ------------------------------------------------------------------------ with its Tender Offer notwithstanding the withdrawal of the Amendment and notwithstanding that, by proceeding with the Tender Offer, Wheatley would be making a tender offer for an equity security registered under Section 12(g) of the Exchange Act, and would, by its failure to comply with Regulation 14D promulgated thereunder, be in violation of Section 14(d)(1) of the Exchange Act. Evans and Payne likewise understood that, by encouraging Wheatley to proceed with the Tender Offer without complying with Section 14(d)(1) and Regulation 14D promulgated thereunder, the Partnership would, by its response, violate the provisions of Section 14(d)(4) and Regulation 14D promulgated thereunder. Had Wheatley and defendants Evans and Payne been confronted with the choice of proceeding with and responding to the Tender Offer in compliance with the provisions of Section 14(d) of the Exchange Act and Regulation 14D thereunder, or abandoning the Tender Offer, Wheatley would not have made, or would have abandoned, the Tender Offer. Had Wheatley not made or had it abandoned the Tender Offer, then plaintiff and the members of the Plaintiff Class would have received from the Partnership, on or about March 20, 1994, payments equal to the full outstanding principal of their Notes, together with all accrued but unpaid interest thereon. 129. Defendants Evans and Payne represented the Fox Defendants in their negotiations with the Wheatley Defendants over the Tender Offer. Evans and Payne directed, in their capacities as partners of FRI, the managing partner of Montgomery Realty Co., the General Partner of the Partnership, the Partnership's filing, on or about July 26, 1993, of its Amendment to its Registration Statement on Form 8-A so as to de-register the Notes as equity securities under Section 12(g) of the Exchange Act. COMPLAINT - 56 - ------------------------------------------------------------------------ 130. Defendants Evans and Payne participated in discussions with Wheatley Defendants when the Partnership received the SEC's August 6, 1993, comment letter raising questions with respect to the Amendment (paragraphs 58 and 59). Evans and Payne decided, for and on behalf of FRI (and with the consent of the partners of FRI), the managing partner of Montgomery Realty Co., the General Partner of the Partnership, to approve of the Partnership's withdrawal of the Amendment with the SEC and to proceed with the Tender Offer notwithstanding that, with the withdrawal, Wheatley would, by the Tender Offer, make a tender offer for equity securities registered under Section 12(g) of the Exchange Act. Evans and Payne, for and on behalf of FRI and Montgomery Realty Co., made the decision to prepare and distribute the Partnership's response to the Tender Offer (Exhibits B and C hereto) without making any of the filings required by Section 14(d)(4) of the Exchange Act or Regulation 14D thereunder. In their participation in and response to the Tender Offer, FRI and Montgomery Realty Co. willfully violated Section 14(d)(4) of the Exchange Act and Regulation 14D thereunder. By inducing FRI and Montgomery Realty Co. to willfully violate Section 14(d)(4) of the Exchange Act and Regulation 14D thereunder, Evans and Payne themselves willfully violated Section 14(d)(4) of the Exchange Act and Regulation 14D thereunder. WHEREFORE, plaintiff prays for judgment against defendants Fox Realty Investors, Montgomery Realty Company--80, Jarold A. Evans, and Lisle W. Payne, and each of them, as hereinafter set forth. /// COMPLAINT - 57 - ------------------------------------------------------------------------ Fifth Claim For Relief Violation of the Trust Indenture Act (Against Northern Trust CA) 131. Plaintiff realleges paragraphs 1 through 92 herein. 132. Congress enacted the Trust Indenture Act, 15 U.S.C. § 77aaa et seq., to provide certain rights to the holders of publicly-issued debt securities such as the Noteholders. 133. During the period of time that it served as Trustee under the Indenture, from January 1992 through March 1994, Northern Trust CA was subject to the provisions of Section 315 of the Trust Indenture Act, 15 U.S.C. § 77ooo. 134. Section 315 of the Trust Indenture Act sets forth the duties and responsibilities of indenture trustees. The Trust Indenture Act and the law of indenture trustees generally draw a sharp distinction between the duties and responsibilities of a trustee prior to the occurrence of an event of default under an indenture, and the duties and responsibilities of a trustee after the occurrence of an event of default. Prior to the occurrence of an event of default, an indenture trustee is generally not liable to the issuer or to the holders of the issuer's debt securities except for the performance of such duties as are specifically set forth in the indenture. After the occurrence of an event of default however, an indenture trustee becomes a fiduciary, charged with protecting the interests of the holders of the issuer's debt securities. Specifically, Section 315(c) of the Trust Indenture Act, 15 U.S.C. § 77ooo(c), provides that an indenture trustee shall exercise, in the event of a default under an indenture, such rights and powers as are vested in it by the indenture, and shall use the same degree of care and skill in their exercise as a prudent man COMPLAINT - 58 - ------------------------------------------------------------------------ would exercise or use under the circumstances in the conduct of his own affairs. 135. The failure of the Partnership to pay interest to the Noteholders on or about April 15, 1989 constituted an event of default under Section 7.01 of the Indenture. The failure of the Partnership to make subsequent quarterly payments of interest on the Notes, from and after April 1989 through the date the Tender Offer was begun (August 20, 1993), each constituted an event of default under Section 7.01 of the Indenture. The events of default committed by the Partnership under the Indenture prior to August 20, 1993, had not been cured by the Partnership by the time the Tender Offer was commenced, or at any time prior to the date the Tender Offer was consummated, on or about December 6, 1993. 136. Northern Trust CA violated the duties imposed upon it by Section 315(c) of the Trust Indenture Act in agreeing to and entering into the Seventh Supplemental Indenture. Northern Trust CA knew, or had reason to know, that the purpose of the Seventh Supplemental Indenture was to enable the Wheatley Defendants to make, and the Fox Defendants to respond to, the Tender Offer without compliance with the provisions of Section 14(d) of the Exchange Act and rules and regulations promulgated thereunder. Had Northern Trust CA refused to agree to and enter into the Seventh Supplemental Indenture, the Tender Offer would not have been made. 137. Northern Trust CA violated the duties imposed upon it by Section 315(c) of the Trust Indenture Act in its response to the decision by the Wheatley and Fox Defendants, made in response to the letter of comments of the SEC on the Partnership's proposed Amendment seeking to de-register the Notes as equity securities COMPLAINT - 59 - ------------------------------------------------------------------------ under Section 12(g) of the Exchange Act (paragraph 58-61 hereof), to withdraw the Amendment from the SEC and to proceed with the Tender Offer without compliance with the provisions of Section 14(d) of the Exchange Act and the rules and regulations promulgated by the SEC thereunder. Once Northern Trust CA knew, or had reason to know, that these defendants had elected to proceed with the Tender Offer without compliance with the Exchange Act, Northern Trust had a duty under Section 315(c) to oppose the decision. Had Northern Trust CA opposed the decision by the Wheatley and Fox Defendants to proceed with the Tender Offer without compliance with the Exchange Act and the rules and regulations promulgated by the SEC thereunder, the Tender Offer would not have been made, or, if made, would not, in the face of Northern Trust CA's opposition and the actions it could have taken to protect the interests of the Noteholders, been consummated. 138. Had the Tender Offer not been made, or, if made, had not been consummated, then plaintiff and the members of the Plaintiff Class would have received from the Partnership, on or about March 20, 1994, payments equal to the full outstanding principal of their Notes, together with all accrued but unpaid interest thereon. WHEREFORE, plaintiff prays for judgment against Northern Trust CA as hereinafter set forth. /// /// COMPLAINT - 60 - ------------------------------------------------------------------------ Sixth Claim for Relief Breach of the Indenture (Against Northern Trust CA) 139. Plaintiffs reallege paragraphs 1 through 92 herein. 140. Before debt securities may be issued to the public, the indenture under which they are to be issued must be "qualified" with the SEC under the Trust Indenture Act. With respect to debt securities that must be registered with the SEC pursuant to the Securities Act, an indenture is deemed qualified when the Registration Statement covering the debt securities is declared effective by the SEC. An indenture qualified with the SEC under the Trust Indenture Act must meet the requirements of the Trust Indenture Act, including the incorporation of those provisions required to be included therein by the Trust Indenture Act. 141. The Indenture was qualified by the Partnership with the SEC pursuant to the Trust Indenture Act in 1981. 142. Upon its replacement of TSA as Trustee under the Indenture on or about January 1992, Northern Trust CA assumed the duties and responsibilities of the Trustee under the Indenture. 143. Section 8.01 of the Indenture incorporates the provisions of Section 315(c) of the Trust Indenture Act. Specifically, pursuant to Section 8.01 of the Indenture, the Trustee, once an event of default has occurred under the Indenture, and is continuing, is required to exercise such of the rights and powers vested in it by the Indenture, and is to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. COMPLAINT - 61 - ------------------------------------------------------------------------ 144. Once an event of default occurs under the Indenture, the Trustee is granted broad powers over the properties of the Partnership. These include the right and power to protect and enforce its rights and the rights of the Noteholders by suits at law or in equity (Section 7.04); the right and power to foreclose the lien of the Indenture on the properties of the Partnership and to sell the same (Section 7.04); the right and power to enforce any other proper legal or equitable remedy as the Trustee deems most expedient in the interests of the Noteholders (Section 7.04); the right and power to enter into and upon or to administer all or any of the properties of the Partnership, and to exclude the Partnership, its agents and servants, wholly therefrom (Section 7.05); the right and power to operate and manage the properties of the Partnership and to conduct the business thereof to the best advantage of the Noteholders (Section 7.05); and the right and power to exercise all rights and powers of the Partnership with respect to its properties (Section 7.05). 145. The failure of the Partnership to pay interest to the Noteholders on or about April 15, 1989 constituted an event of default under the Indenture. The failure of the Partnership to make subsequent quarterly payments of interest on the Notes, from and after April 1989 through the date the Tender Offer was begun (August 20, 1993), each constituted an event of default under the Indenture. The events of default committed by the Partnership under the Indenture prior to August 20, 1993, had not been cured by the Partnership by the time the Tender Offer was commenced, or at any time prior to the date the Tender Offer was consummated, on or about December 6, 1993. COMPLAINT - 62 - ------------------------------------------------------------------------ 146. The Indenture is a contract by and among the partnership (acting through its General partner), the Trustee, and the Noteholders. 147. Northern Trust CA violated the duties imposed upon it by Section 8.01 of the Indenture in agreeing to and entering into the Seventh Supplemental Indenture. Northern Trust CA knew, or had reason to know, that the Purpose of the Seventh Supplemental Indenture was to enable the Wheatley Defendants to make, and the Fox Defendants to respond to, the Tender offer without compliance with the provisions of Section 14(d) of the Exchange Act and rules and regulations promulgated thereunder. Had Northern Trust CA refused to agree to and enter into the Seventh Supplemental Indenture, the Tender Offer would not have been made. 148. Northern Trust CA violated the duties imposed upon it by Section 8.01 of the Indenture in its response to the decision by the Wheatley and Fox Defendants, made in response to the letter of comments of the SEC on the Partnership's proposed Amendment seeking to de-register the Notes as equity securities under Section 12(g) of the Exchange Act (paragraphs 58-61 hereof), to withdraw the Amendment from the SEC and to proceed with the Tender offer without Compliance with the provisions of Section 14(d) of the Exchange Act and the rules and regulations promulgated by the SEC thereunder in connection with the Tender Offer. Once Northern Trust CA knew, or had reason to know, that these defendants had el